What are two important properties of economic models? Models tend to be simplified descriptions of a real-world phenomenon. Does this mean that they are unrealistic?
What will be an ideal response?
A good economic model has two important properties. First, it is an approximation. The model predicts what would happen on average. Second, it makes predictions that can be tested with data.
A model is a simplified description, or representation, of reality. Because models are simplified, they are not perfect replicas of reality. However, this does not mean that they are unrealistic. Models are usually simplified in order to be able to isolate the relationship between two variables. Even if a model is based on simplified assumptions, it may still help us make good predictions and plan for the future.
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The real return on money is
A) 0. B) -r. C) -i. D) -R.
According to economists, when two people make exactly the opposite decision
A) one of them is acting irrationally. B) each person evaluates the situation according to his/her individual self-interest. C) one of them is acting out of spite. D) one of them should compromise.