The Basic Purpose of Economic Models Is To

question 92

Multiple Choice

The basic purpose of economic models is to:

• A) construct simplifying assumptions about the real world.
• B) explain reality in all its complexity.
• C) construct situations where controlled experiments can be carried out.
• D) provide explanations for, and predictions of the relationship between variables.

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Definitions:

Political Risk

The risk of losing money due to political instability or changes in government policy affecting an investment.

American Options

A type of options contract that allows the holder to exercise the option at any time before the expiration date.

Capital Budgeting

The process of evaluating and selecting long-term investments that are consistent with the firm's goal of maximizing owner wealth.

Foreign Currency

Currency used in a country other than one's own, involved in international transactions or investment opportunities.