The Purpose of Making Assumptions in an Economic Model Is

question 47

Multiple Choice

The purpose of making assumptions in an economic model is to

• A) force the model to yield the correct answer.
• B) minimize the amount of work an economist must do.
• C) simplify the model while keeping important details.
• D) express the relationship mathematically.

---

Definitions:

Inflation

The pace at which overall prices for goods and services increase, gradually diminishing the value of money.

Price Level

The average of current prices across the entire spectrum of goods and services produced in the economy, often measured by consumer price indices.

Net Increase

The amount by which something grows or goes up, calculated by taking total gains and subtracting any losses.

Inventories

The stock of goods or materials that a company holds for the ultimate goal of resale or production.