It allows us to analyze the economic events of the world by simplifying a very complex economic world.
An economic model is a condensed description of reality that produces testable hypotheses about how the economy will behave. A key characteristic of an economic model is that, due to the lack of any objective metrics for economic results, its design must unavoidably be subjective. Different economists will assess what is required to explain their perceptions of reality in different ways. Theoretical and empirical economic models fall into two major categories. The goal of theoretical models is to draw provable conclusions regarding economic behavior under the premise that agents maximize particular goals while taking into account clearly established model limitations. The goal of empirical models, in contrast, is to translate the qualitative predictions of theoretical models into exact, numerical results.
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