If the prices of the goods and services contained in the CPI ...

[tuffie]

If the prices of the goods and services contained in the CPI market basket increase from the base period to the next year, we know that
 
  A) the market basket used by the BLS must be changed next year to reflect consumers' new expenditures.
  B) the next year's CPI will be below 100.
  C) the next year's CPI will be above 100.
  D) the inflation rate is falling.
  E) the cost of the CPI market basket at next year's prices is lower than the cost of the CPI market basket at base period prices.

Question 2

Describe the relationship between the Federal Reserve and the legislative and executive branches of the U.S. government.
 
  What will be an ideal response?

[tdewitt]

Answer to Question 1

C

Answer to Question 2

Although the Fed operates with independence from the U.S. Treasury, it is a creation of Congress and the chairperson of the Board of Governors is required to report to Congress on a regular basis. In practice, the Fed takes its actions first and later reports those actions to Congress. The chairperson of the Fed often will meet with members of the executive branch to discuss economic affairs. Presidents and members of Congress can bring political pressures on the Board of Governors of the Fed but 14-year terms provide some insulation from external pressures.