When Computing a Price Index, the Base Year Is

question 405

Multiple Choice

When computing a price index, the base year is

• A) the earliest year for which data are available.
• B) the year that is chosen as the point of reference for comparison of prices with other years.
• C) the most recent year for which data are available.
• D) the most recent year in which the inflation rate was close to zero.

---

Definitions:

Externalities

Costs or benefits that affect parties who did not choose to incur that cost or benefit, often leading to market failure if unaddressed.

Moral Hazard

A situation in which one party engages in risky behavior or lacks incentive to guard against risk because another party bears the consequences.

Moral Hazard

The situation in which one party can take risks because they know that they will not have to bear the full consequences of their actions.

Life Insurance

A contract between an insurer and a policyholder, where the insurer promises to pay a designated beneficiary a sum of money upon the death of the insured person.