The Simple Circular-Flow Model for Households and Firms Is an Economic

question 198

Multiple Choice

The simple circular-flow model for households and firms is an economic model that focuses on the interaction between households and firms. Which of the following statements regarding the model is correct?

• A) As the model does not include the interaction between firms and resource markets, it does not predict correctly.
• B) As the model does not include the interaction between households and product markets, it does not predict correctly.
• C) The model has too many simplifying assumptions, and it cannot be used to make predictions about the real world.
• D) The model is a simplification of the real world, and it can be used to make predictions about the real world.
• E) As the model does not include the interaction between firms and product markets, it does not predict correctly.

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Definitions:

Intervention Group

A group in a scientific study that receives the treatment or intervention being tested, as opposed to a control group which does not.

Control Group

A group in an experiment or study that does not receive treatment by the researchers and is then used as a benchmark to measure how the other tested subjects do.

Masking

A method used in research where the participants and/or researchers are unaware of which individuals are in the control group and which are in the experimental group, to prevent bias.

Confounding

A situation in which the effect of two variables on a third is not clearly distinguishable.