Assume that the market basket of goods and services purchased in 2004 by the average family in the United States costs $14,000 in 2004 prices, whereas the same basket costs $21,000 in 2009 prices. However, the basket of goods and services actually purchased by the average family in 2009 costs $20,000 in 2009 prices, whereas this same basket would have cost $15,000 in 2004 prices. Given these data, a Paasche index for 2009 using 2004 prices would be:
A) 1.05.
B)approximately 1.07.
C)approximately 1.33.
D)1.50.

Question

Quizplus · Accepted Answer

The Paasche index is calculated as the cost of the current year basket at current year prices divided by the cost of the current year basket at base year prices. Thus, it is $20,000 (2009 prices) / $15,000 (2004 prices) = 1.3333, which is approximately 1.07 when rounded.

Assume That the Market Basket of Goods and Services Purchased