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Chapter 2 Thinking Like an Economist




Question;13. Assumptions can simplify the complex world and make it easier to;understand.;14. Economists often find it worthwhile to make assumptions that do not;necessarily describe the real world.;15. Economists use one standard set of assumptions to answer all;economic questions.;16. Economic models are most often composed of diagrams and equations.;17. Economic models omit many details to allow us to see what is truly;important.;18. Economic models can help us understand reality only when they;include all details of the economy.;19. An economic model can accurately explain how the economy is;organized because it is designed to include, to the extent possible, all;features of the real world.;20. All scientific models, including economic models, simplify reality;in order to improve our understanding of it.;21. The circular-flow diagram explains, in general terms, how the;economy is organized and how participants in the economy interact with one;another.;22. A circular-flow diagram is a visual model of the economy.;23. The circular flow model is not used anymore because it fails to;perfectly replicate real world situations.;24. In the circular-flow diagram, households and firms are the decision;makers.


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