Building an Economic Model Based on the Assumption of a Small

question 73

Multiple Choice

Building an economic model based on the assumption of a small open economy is useful because:

• A) it accurately describes the U.S. economy.
• B) it is more complicated and realistic than a model based on the assumption of a large open economy.
• C) this simplifying assumption can assist our understanding and intuition of open economy macroeconomics.
• D) it is not possible to build models of large open economies.

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Definitions:

Standard Machine-Hours

An accounting measure used to allocate manufacturing overhead costs to products based on the number of hours machines are expected to operate.

Variable Overhead Rate Variance

The difference between the expected (standard) cost of the variable overhead based on the actual production volume and the actual variable overhead incurred.

Standard Machine-Hours

A predetermined amount of time that a machine is expected to operate to meet production requirements.

Manufacturing Overhead

All indirect costs associated with the manufacturing process, including rent, utilities, and salaries for employees not directly involved in production.