An Economic Model That Contains a Highly Realistic Set of Assumptions

question 105

Multiple Choice

An economic model that contains a highly realistic set of assumptions is

• A)useful because there is then very little difference between "theory" and "reality."
• B)necessarily better able to predict the future.
• C)certainly superior to a model whose assumptions are highly unrealistic.
• D)more abstract than a model whose assumptions are further removed from reality.
• E)not likely to be useful because of its particularized nature and its complexity.

---

Definitions:

Interest Rates

The cost of borrowing money or the reward for saving, typically expressed as a percentage of the principal.

Longer-Term Loans

Loans with a repayment period that extends beyond the typical short-term or intermediate-term period, often used for major investments.

Real Rate

The interest rate adjusted for inflation, reflecting the true cost of borrowing or the true return on investment.

Inflation

The rate at which the general level of prices for goods and services is rising and, subsequently, purchasing power is falling.