All Economic Models Must Involve Simplifications Because

question 50

Multiple Choice

All economic models must involve simplifications because:

• A)economists would be unable to command high salaries if their models were so simple that anyone could understand them.
• B)human behavior is very erratic and unpredictable.
• C)reality is too complex to understand in its entirety,so we must reduce the complexity to a level that we can understand.
• D)they always try to duplicate all possible information and cover all possible variables that might influence decision making.
• E)we must rely on value judgments and ignore reality.

---

Definitions:

Pay-As-You-Go Principle

A financing method where expenditures are not financed by borrowing but from current revenues.

Federal Reserve

The central banking system of the United States, responsible for monetary policy, banking supervision, and financial services.

Personal Savings

Money that individuals set aside from their income, after consumption and taxation, for future use or investment.

Demographic Conditions

The statistical characteristics of populations, such as age, race, gender, and income, which affect consumer behavior and economic trends.