What is the role of models in economic analysis? How can it be determined if the assumptions underlying the design of an economic model are overly simplified or overly limiting? At what point do the assumptions invalidate the model? Why?

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Darryn D'SouzaLv10

28 Sep 2019

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Economists use economic models to guide their thinking in regards explaining and predicting that which is otherwise unknown. These models are generalizations that rest on assumptions we use in creating a simplified setting, where only that which is most-pertinent is allowed to come into play directly, and at the same time, that which is not pertinent is rendered excluded by being held constant. Simply put, if you change your founding assumptions, you change the model for you have changed the simplified setting. If you change a variable that is included directly into the model, you can then assume the variable changes marginally then trace out the effects of this marginal change on the variable being explained. Similarly, If you allow a change of a variable that has been excluded, you are relaxing an assumption so you can reason out what the effects of such a change could be.

What is important to understand here, is the description I have just relayed to you describes how economists use models. It is but one example of how models are used more-generally in ALL the other sciences and social sciences. And to go a step further, it is but a description or formalization of how we in an all-inclusive sense use assumptions when we are reasoning about that which we reason about. Our assumptions are our foundations for our thoughts about all that we consider in our efforts towards understanding the world in which we live and the people, both individually and collectively inclusive of their institutions, with whom we come into contact.

Using this knowledge, describe what you think are the dangers to our thinking and actions based on our thinking of our using simplifying assumptions that are wholly untrue or are too strong, too constricting, are way too over-generalizing. Choose whatever context you wish and provide an example. Then describe why having at the very least a small measure of skepticism may be considered healthy for one's own sake and the sake of others.

thoughts on Classical Model and Keynesian Model. What assumptions about economic behaviors and economic policies are implemented in the U.S. economy today? Have you gained a better understanding of why the Obama administration's economists requested Congress to approve the "stimulus package"? Do you have any alternative proposals for economic growth (or criticisms of the current policies)? Note: These questions intend to get you started in your discussionâto make you think. Use one or two of them to get yourself started in relating the models to current economic policies. You will no doubt have your own questions to discuss as well. In order to receive full credit for this discussion, you need to post (1) an answer of at least 100 words to at least one of the questions below, and (2) a substantive response of at least 50 words to a comment on this discussion board posted by another student. A substantive response is more than just saying you agree or disagree. Explain why.

The Production Possibilities Model is one of the first Economic Models students learn about.

a. Please explain what the mode teaches us.

b. Please explain each of the 4 assumptions of the model.

c. Please explain Productive Efficiency and how it relates to the PPC.

i. Define it and explain how it relates to the PPC.

d. Please explain Allocative Efficiency and how the point of AE is found.

i. Define it, ii. Discuss the significance of allocative efficiency relative to the model iii. Explain the 2 step process for finding the point of allocative efficiency on the PPC.

e. On the topic of Economic growth: i. What does it mean? ii. How can it be graphically represented? iii. What are the prerequisites to Economic growth? iv. Why is Economic growth important? v. What factors tend to limit growth?

f. The Presentville Futureville case:

1. Explain what motivates each group to make decisions.

2. Explain the impact of those decisions on the future of each group.

3. Explain the relevance of this case for the U.S. Economy. 4. What does this case teach you? g. Law of increasing opportunity cost: 1. What does it tell us? 2. How could it be explained graphically? h. Explain how you could use the Production Possibility Model to represent the US Economy during 2008 - 2010.

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What is the role of models in economic analysis? How can it be determined if the assumptions underlying the design of an economic model are overly simplified or overly limiting? At what point do the assumptions invalidate the model? Why?

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