Economists Often Evaluate a Theory in Terms of How Consistently

question 21

Multiple Choice

Economists often evaluate a theory in terms of how consistently and accurately it predicts what happens.Implicit in this position is the belief that

• A) if the theory's predictions are consistently accurate,then there is a fairly good chance that the theory is a good explanation of how things work.
• B) if the theory's predictions are consistently accurate,then there is a fairly good chance that the theory will be accepted by others.
• C) if the theory's predictions are consistently accurate,then there is a fairly good chance that the theory's assumptions (even if they initially seem unrealistic)capture something that is essential to explaining what it is that the theory is trying to explain.
• D) all of the above

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Definitions:

Interest Rate

The proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding.

Discounted Cash Flow

Discounted Cash Flow is a valuation method used to estimate the attractiveness of an investment opportunity, based on projections of future cash flows adjusted for time value of money.

Time Value

The concept that money available at the present time is worth more than the same amount in the future due to its potential earning capacity.

Net Present Value

A method used in capital budgeting to assess the profitability of an investment or project by calculating the present value of its expected cash flows minus the initial investment cost.