If the Fed wanted to target price stability, meaning zero inflation, why should it set a target rate of inflation of around one percent?
What will be an ideal response?
Economists maintain that the CPI, which is a common measure of inflation, overstates the true rate of inflation by as high as one percentage point per year. This is primarily due to the fact that the CPI is measured using a fixed basket of goods and does not reflect the fact that consumers can substitute away from higher priced goods towards less expensive substitutes and that quality improvements are not always adjusted for, so what looks like a higher price may simply be an improvement in quality.
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Which of the following gives consumers an incentive to reduce the consumption of a service when the cost of providing the service is the highest?
a. average cost pricing b. constant pricing c. peak load pricing d. regulated pricing
To raise the most tax revenue, governments should consider taxing goods whose
a. income elasticity of demand is high b. price elasticity of demand is low c. income elasticity of supply is low d. income elasticity of demand is high e. cross elasticity of demand is positive