To be valid, an economic model must: a. Include every activity which occurs in the real world. b. be able to predict events occurring in the real world. c. not be based on an abstraction of the real world. d. exclude any link to the real world.

The correct answer is: **b. be able to predict events occurring in the real world.** **Explanation:** Economic models are simplified representations of reality designed to analyze and predict economic phenomena. For a model to be valid, it doesn't need to include every real-world activity (which would make it overly complex and impractical). Instead, it should effectively capture the essential elements that influence the outcomes of interest. Additionally, economic models are inherently abstractions of the real world, allowing economists to focus on specific relationships and mechanisms. Finally, these models must maintain a connection to the real world to ensure their predictions are relevant and applicable. **Summary of Options:** - **a. Include every activity which occurs in the real world.** *Incorrect.* Models simplify reality by focusing on key elements. - **b. be able to predict events occurring in the real world.** *Correct.* Predictive capability is essential for a model's validity. - **c. not be based on an abstraction of the real world.** *Incorrect.* Models are, by nature, abstractions. - **d. exclude any link to the real world.** *Incorrect.* Models need to relate to real-world scenarios to be useful.