What is an economic theory or model? What constitutes a "good" economic theory or model?
What will be an ideal response?
An economic theory is a simplified version of reality. It is a general statement about the causal relationship between economic phenomena based on facts. A truly "good" theory will predict well, explain economic behavior, indicate to what extent the predicted outcome is expected to occur, and indicate how long it will take for the predicted outcome to be observed.
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A closed economy is one that
A. uses tariffs. B. uses quotas to restrict trade. C. uses exchange controls. D. does not trade with other nations.
When the unemployment rate equals the natural unemployment rate, most likely the economy is producing
A) on the production possibilities frontier. B) within the production possibilities frontier. C) beyond the production possibilities frontier. D) either on or within the production possibilities frontier. E) either on or beyond the production possibilities frontier.
According to the permanent income hypothesis, consumption spending depends largely on ________
A) current income B) the savings rate C) a consumer's lifetime resources D) the level of current income plus the value of the assets owned by the household
Which of the following is true of illegal immigrants?
a. They help improve the quality of goods and services produced in the United States. b. They help increase the wage rate in the U.S. c. They do not affect the equilibrium wage of the U.S. unskilled labor market. d. They help some firms lower operating costs, earn more profit, and produce more. e. They reduce the supply of unskilled labor in the United States.