Which of the following statements about economic models is TRUE?
A)Economic models are not empirically testable.
B)The predictive power of models is not important.
C)Economic models are designed so that every detail of the real world can be analyzed.
D)Every economic model is based on a set of assumptions.

Question

Quizplus · Accepted Answer

Every economic model is based on a set of assumptions. Assumptions simplify the complexities of the real world and make it possible to analyze the relationships between variables in a systematic way. However, these assumptions may not hold true in the real world, making empirical testing important. The predictive power of models is also important, as it allows us to make forecasts and judgments about the impact of policies or events. Economic models are not designed to capture every detail of the real world, but to provide a simplified representation of it that can be analyzed with rigor.

Which of the Following Statements About Economic Models Is TRUE