Macroeconomics Study Set 48
Quiz 2: Economic Models: Trade-Offs and Trade
Because Models Make Simplifying Assumptions, They Are of Very Little
Because models make simplifying assumptions, they are of very little use in the real world.
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An economic model is a simplified version of reality that is used to analyze real-world economic situations.
The financial meltdown in 2008-2009 was partially the result of a faulty economic model that misestimated the value of mortgage-backed securities.
The value of a mortgage-backed security is tied to the interest on the national debt paid by the Federal Reserve.
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