Which of the following statements is true about the comparison between the Laspeyres and Paasche indices?
A) The Laspeyres index is more expensive to compute than the Paasche index.
B) The data requirements are more stringent for the Laspeyres index than for the Paasche index.
C) Unlike the Laspeyres index, the Paasche index incorporates current expenditure patterns of consumers.
D) Unlike the Paasche index, the Laspeyres index requires that the weights be updated each year and the index numbers be recomputed for all of the previous years.

Question

Quizplus · Accepted Answer

The Paasche index incorporates current expenditure patterns of consumers, while the Laspeyres index uses fixed weights based on a base period. A and B are incorrect because the cost and data requirements are similar for both indices. D is incorrect because the Paasche index also requires weights to be updated each year and previous years' index numbers to be recomputed.

Which of the Following Statements Is True About the Comparison