Final answer:
The quality of an economic model is measured by its accuracy in prediction and explanation, and its relevance in representing significant economic variables. Models like GDP, when accurately reflecting the economy, indicate a high-quality model.
Step-by-step explanation:
The quality of an economic model can be assessed primarily by two criteria:
- Accuracy: An economic model should be able to predict and explain the outcome accurately. For instance, an economist predicting stock market outcomes records the actual points on the index each day and compares them to the model's predictions to check its accuracy.
- Relevance: The model must represent economic variables relevant to the scenario it intends to explain or predict. For example, GDP is a model that reflects the economic performance of a country by indicating the value of all goods and services produced within a year.
When an economic model successfully predicts and analyzes real-world situations with precision and incorporates significant variables like Budget, GDP, productivity, and factors affecting economic performance, it is considered to be of high quality.