In an economic model, exogenous variables are considered outside factors that affect the model, such as changes in government policy, while endogenous variables are considered internal factors that are affected by the model. Therefore, the direction of causation typically runs from exogenous variables to endogenous variables.

Solved

In an Economic Model

Question 31

Multiple Choice

In an economic model

A) endogenous variables determine exogenous variables.
B) exogenous variables determine endogenous variables.
C) the government budget constraint determines exogenous variables.
D) endogenous and exogenous variables are determined simultaneously.
E) fiscal policy determines endogenous variables.

Correct Answer: