An Appropriate Test of the Effectiveness of an Economic Model

question 312

Multiple Choice

An appropriate test of the effectiveness of an economic model is

• A) the number of variables contained within the model.
• B) the model's ability to predict future economic activity.
• C) the number of economists who have worked on the model.
• D) the number of assumptions which the economist has made.

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Definitions:

Overhead Costs

Indirect expenses related to the day-to-day running of a business, not directly tied to specific product or service production.

Variable Costing

An accounting method that includes only variable production costs (materials, labor, and overhead) in product costs and treats fixed overhead costs as period costs.

Absorption Costing

An accounting method that incorporates all direct and indirect manufacturing costs into the cost of a product.

Net Profit

The total earnings of a company after subtracting all expenses, including taxes and operating costs, from its total revenues.