An Economic Model

question 136

Multiple Choice

An economic model:

• A) exactly explains what happens in the real economy.
• B) discards unnecessary details to clearly demonstrate the central principles of the economic activity.
• C) approximates all facets of what happens in the real economy.
• D) does not make clear assumptions about the economic activity.

---

Definitions:

Cash Equivalent

Short-term, highly liquid investments that can be easily converted to a known amount of cash.

Liquid Asset

Assets that can be quickly and easily converted into cash without significant loss in value.

Noncash Investing

Transactions involved in investing activities that do not involve immediate cash flow, such as exchanging one asset for another.

Financing Activity

Activities that result in changes in the size and composition of the equity capital and borrowings of the company.