In computing the consumer price index, a base year is chosen. Which of the following statements about the base year is correct?
a. The base year is always the first year among the years for which computations are being made.
b. It is necessary to designate a base year only in the simplest case of two goods; in more realistic cases, it is not necessary to designate a base year.
c. The value of the consumer price index is always 100 in the base year.
d. All of the above are correct.
C
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The Fed has announced that its views its long term target for the inflation rate as:
A. 5%. B. 0%. C. 2%. D. 10%.
If a third party pays a larger and larger share of the purchasing price of a good, economic theory indicates that
a. the total expenditures (including those made by the third party) on the good will decline. b. the demand for the good will decrease. c. consumers will have a stronger incentive to economize on their use of the good. d. suppliers will have less incentive to provide the good at low prices.
At the full-employment unemployment rate there is only:
a. Demand-deficient unemployment b. Frictional and structural unemployment c. Cyclical and frictional unemployment d. "discouraged workers" unemployment
If the objective of economic policy is to decrease the amount of pollution by an industry in the long run, the
A. most effective policy action would be a subsidy to firms for the reduction of emissions. B. most effective policy action would be a tax on polluting firms. C. appropriate course of action for government is to do nothing. D. appropriate course of action for government is to increase R&D outlays to develop technology to remove the emissions from the environment.