Certified Residential Appraiser Practice Exam

What is the purpose of economic base analysis?

1. To study the aesthetics of a community

2. To forecast the level and composition of further economic activity based on employment and income

3. To analyze historical building trends

4. To determine the environmental impact of a community

The correct answer is: To forecast the level and composition of further economic activity based on employment and income

The purpose of economic base analysis is fundamentally centered on understanding and forecasting the level and composition of economic activity within a community. This analysis focuses on employment and income data to assess how these factors influence the local economy. By examining the economic base, appraisers can identify which industries or sectors are critical to the community's economy and how changes in these sectors might affect overall economic health. This approach allows for better predictions of future growth or decline, guiding decisions related to property valuation, development planning, and investment strategies. It emphasizes the interrelationship between employment opportunities and income generation, which are crucial for sustaining a vibrant economic environment. Hence, option B aptly captures the essence of economic base analysis.