Which of the following statements concerning economic models is FALSE?
A) Economic models must provide usable predictions.
B) Economic models are based on pure fact and no assumptions.
C) Economic models are tested empirically.
D) Economic models relate to how people behave.
B
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Starting from long-run equilibrium, a large tax cut will result in a(n) ________ gap in the short-run and ________ inflation and ________ output in the long-run.
A. expansionary; higher; higher B. expansionary; higher; potential C. recessionary; higher; potential D. recessionary; lower; lower
A shift away from expenditures on domestic goods and a shift toward expenditures on foreign goods when the domestic price level increases is known as
A) the interest rate effect. B) demand side inflation. C) the real-balance effect. D) the open economy effect.
Holding everything else constant, the demand for a good tends to be more elastic
A) the more substitutes there are for the good. B) the less important the product is in consumers' budgets. C) the shorter the time period involved. D) the more consumers perceive the good to be a necessity.
After participating members of a cartel form an agreement on common prices and output quotas, then an individual firm can increase its own profits by
A) increasing production. B) increasing prices. C) leaving the cartel. D) incurring higher input costs.