1. Economic models The following diagram presents a circular-flow model of a simple economy. The outer set of arrows (shown in green) shows the flow of dollars, and the inner set of arrows (shown in red) shows the corresponding flow of inputs and outputs. Which of the following is true regarding this economic model? Because it does not take into account the role of government, the circular-flow diagram is useless for the purposes of modeling how dollars and resources move throughout an economy. While simple, the circular-flow diagram can still be useful for the purposes of modeling how dollars and resources move throughout an economy. Because it does not take into account international trade. the circular-flow diagram is useless for the purposes of modeling how dollars and resources move throughout an economy. Because, in reality, the economy is very large, the simplicity of the circular-flow diagram makes it useless for the purposes of modeling how dollars and resources move throughout an economy. Points: 1 / 1 Close Explanation Explanation: Scientists of all types make assumptions in their models to simplify the complex world they are trying to describe. These simplifying assumptions allow scientists to focus on only the most important and generalizable components of the topic of study. Economists also make simplifying assumptions to focus on only the most important and generalizable aspects of the economy. Indeed, economies typically consist of millions of individuals interacting in many different ways. However, no model can include every detail of a system as complex as an economy. To make sense of all of the different aspects of an economy, economists must make simplifying assumptions and generalizations in order to focus on only the most important economic ideas. By grouping all individuals into households and firms and all markets into markets for goods and services and markets for factors of production, economists can model how dollars and resources flow back and forth among agents in the economy. The simplicity of the model allows those without formal backgrounds in economics to understand, at a high level, the economic activities that take place in an economy