A Model Is Used to Explain Economic Behavior

question 50

Multiple Choice

A model is used to explain economic behavior. Therefore

• A)the assumptions must be complex while the model itself is simple.
• B)the model must be complex.
• C)the model must be simple.
• D)the model can be either simple or complex so long as it explains economic behavior.

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Definitions:

Contract Rate

The interest rate specified in a contractual agreement, such as in a loan or bond.

Market Rate

The prevailing interest rate available in the marketplace for instruments of similar risk and maturity.

Coupon Bonds

Bonds that pay the holder a fixed interest rate (the coupon) over the bond's life, culminating in the repayment of the principal amount at maturity.

Interest Coupons

Certificates attached to bond certificates that represent the interest due on a payment date to the bondholder.