Which of the following best describes an economic model, and what else do economists need besides a model to make policy recommendations?

• A. An economic model is a collection of historical facts; economists also need mathematical equations to make policy recommendations.
• B. An economic model is a simplified representation of reality used to analyze economic phenomena; economists also need empirical data to make policy recommendations.
• C. An economic model is a set of government policies; economists only need models to make policy recommendations.
• D. An economic model is a detailed description of every aspect of the economy; economists only need theoretical assumptions to make policy recommendations.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand what an economic model is. An economic model is a simplified representation of reality that helps economists analyze and understand economic phenomena by focusing on key variables and relationships.
2. Step 2: Recognize that economic models are not exhaustive descriptions of the economy; instead, they abstract from complex details to highlight essential features relevant to the question at hand.
3. Step 3: Identify that while models provide a theoretical framework, economists also require empirical data—real-world observations and statistics—to test, validate, and calibrate these models.
4. Step 4: Understand that policy recommendations rely on both the insights from economic models and the support of empirical evidence to ensure that the advice is grounded in actual economic conditions.
5. Step 5: Conclude that the best description combines the idea of a simplified model with the necessity of empirical data for making informed policy decisions.