Every Economic Model Should Include Money as a Variable

question 10

Multiple Choice

Every economic model should include money as a variable.This statement is

• A) true, because every transaction in the economy uses money.
• B) true, because the federal reserve is very important.
• C) false, because some transactions in the economy are accomplished without money.
• D) false, because a model can get unnecessarily complex if it includes money.

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Definitions:

Inflation Rate

The rate expressed in percentage terms showing the increase in prices for goods and services, leading to a reduction in buying power.

CPI

Consumer Price Index, a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care, used to assess price changes associated with the cost of living.

Salary

A fixed regular payment, typically paid on a monthly or biweekly basis by an employer to an employee, especially a professional or white-collar worker.

Real Interest Rates

The rate of interest an investor expects to receive after allowing for inflation, reflecting the true cost of borrowing and the true yield on savings.