Assume an economy which is producing only one product.Output and price data for a three-year period are as follows.

-Refer to the above data.If year 2 is chosen as the base year,in years 1 and 3 the price index values,respectively,are:
A) 4 and 6.
B) 6 and 4.
C) 120 and 100.
D) 100 and 150.

Question

Assume an economy which is producing only one product.Output and price data for a three-year period are as follows.
 
-Refer to the above data.If year 2 is chosen as the base year,in years 1 and 3 the price index values,respectively,are:
A) 4 and 6. 
B) 6 and 4. 
C) 120 and 100. 
D) 100 and 150.

Quizplus · Accepted Answer

When year 2 is the base year, its price index is 100. If year 1 has a lower price level than year 2, its index will be less than 100, and if year 3 has a higher price level than year 2, its index will be more than 100. Thus, the indices are 100 for year 2, less than 100 for year 1, and more than 100 for year 3, making 100 and 150 the correct indices for years 1 and 3, respectively.

Assume an Economy Which Is Producing Only One Product