Why is indexing not commonly adopted in spite of the fact that it eliminates most of the wealth transfers associated with unexpected inflation?
Indexing is not frequently used because it can always worsen inflation. As prices go up, wages and certain other contractual obligations also automatically increase and this immediate and comprehensive reaction to price increases, leads to greater inflationary pressures. In addition, indexing does not allow relative prices to reflect change in relative scarcity.
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In equilibrium, the interest parity condition requires that:
a. all rates of returns will equalize. b. all spot and forward rates will equalize. c. the home interest rate minus its expected rate of currency depreciation (against the foreign country) will equal the foreign interest rate on similar assets. d. all rates of returns and forward rates will equalize.
If the working age population is 200 million, 150 million are employed, and 6 million are unemployed, the unemployment rate is
A) 3.0 percent. B) 25.0 percent. C) 4.0 percent. D) 12.0 percent. E) 3.8 percent.