Which of the following is the correct interpretation of a Paasche price index of 75, where the base year is 2009 and the current year is 2011?
A)According to the Paasche price index, prices have decreased by 75% from 2009 to 2011.
B)According to the Paasche price index, prices have decreased by 25% from 2011 to 2009.
C)According to the Paasche price index, prices have decreased by 25% from 2009 to 2011.
D)None of these choices are correct.

Question

Quizplus · Accepted Answer

The Paasche price index measures the cost of a certain set of goods in the current year, relative to the cost of that same set of goods in the base year. A Paasche price index of 75 indicates that the cost of the set of goods in the current year (2011) is 75% of the cost of that same set of goods in the base year (2009). Therefore, prices have decreased by 25% from 2009 to 2011.

Which of the Following Is the Correct Interpretation of a Paasche