The Laspeyres and Paasche indices tend to differ when the length of time between the periods increases since the relative quantities of items adjust to the changes in consumer demand over time.

Question

Quizplus · Accepted Answer

The Laspeyres and Paasche indices use fixed weights, meaning they assume that the quantities of goods purchased remain constant over time. However, as consumer demand changes over time, the relative quantities of items purchased also change, which causes the Laspeyres and Paasche indices to diverge. This effect is amplified as the length of time between the periods being compared increases. Therefore, the statement is true.

The Laspeyres and Paasche Indices Tend to Differ When the Length