A Useful Economic Model

question 111

Multiple Choice

A useful economic model

• A)deals only with possibilities that actually occurred.
• B)makes only realistic assumptions.
• C)may make some unrealistic assumptions in order to simplify a complex reality.
• D)should avoid drawing conclusions that have public policy implications, since economics is not equipped to make value judgments.

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Definitions:

Discount Rate

The interest rate used in discounted cash flow analysis to determine the present value of future cash flows, reflecting the time value of money and risk of the cash flows.

Present Value

The current worth of a future sum of money or stream of cash flows, given a specified rate of return; it quantifies the concept of time value of money.

Stamping Machine

A mechanical device used for imprinting designs, patterns, or information on various substrates through the application of pressure.

Discount Rate

The interest rate charged to commercial banks and other financial institutions for loans received from the Federal Reserve's discount window.