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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Starting from long-run equilibrium, a large increase in government purchases will result in a(n) ________ gap in the short-run and ________ inflation and ________ output in the long-run.
A. expansionary; higher; potential B. recessionary; higher; potential C. recessionary; lower; lower D. expansionary; higher; higher
Which of the following is true when a Nash equilibrium is reached in a duopoly with homogeneous products?
A) Both the firms earn positive economic profits. B) Each firm charges a price equal to its average fixed cost. C) Both the firms earn zero economic profits. D) Both firms incur huge losses.
Local property tax policy generally has a small effect on the property tax base.
A. True B. False C. Uncertain
An increase in taxes has the following impact on the budget constraint
A) a parallel move down. B) a parallel move up. C) a tilting to the left. D) a tilting to the right.