Which of the following is NOT true about economic models?

• A. Economic models simplify reality to focus on essential relationships.
• B. Economic models rely on assumptions to make complex problems more manageable.
• C. Economic models always provide exact predictions of real-world outcomes.
• D. Economic models can be used to analyze both positive and normative questions.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand what an economic model is. Economic models are simplified representations of reality designed to focus on key relationships and variables, making complex economic phenomena easier to analyze.
2. Step 2: Recognize the role of assumptions in economic models. Assumptions help reduce complexity by setting conditions under which the model operates, allowing economists to isolate and study specific effects.
3. Step 3: Analyze the statement about exact predictions. Economic models are not expected to provide exact predictions because they simplify reality and rely on assumptions; instead, they offer insights and approximate outcomes.
4. Step 4: Consider the use of economic models for different types of questions. Economic models can be applied to both positive economics (describing and explaining economic phenomena) and normative economics (prescribing policies or recommendations).
5. Step 5: Conclude that the statement 'Economic models always provide exact predictions of real-world outcomes' is NOT true, as models are tools for understanding and approximating, not for delivering precise forecasts.