Refer to the following table when answering the following questions. In this economy, only two goods are produced: video games and pistachios.
Table 2.3: National Income Accounting
-Consider Table 2.3. Using the Laspeyres index, inflation between 2017 and 2018 was about:
A) 0 percent.
B) 5 percent.
C) 1 percent.
D) 6 percent.
E) Not enough information is given.

Question

Refer to the following table when answering the following questions. In this economy, only two goods are produced: video games and pistachios.
Table 2.3: National Income Accounting 
-Consider Table 2.3. Using the Laspeyres index, inflation between 2017 and 2018 was about:
A) 0 percent. 
B) 5 percent. 
C) 1 percent. 
D) 6 percent. 
E) Not enough information is given.

Quizplus · Accepted Answer

To calculate the Laspeyres index, we need to take the price of each good in the base year (2017) and multiply it by the quantity produced in the current year (2018). Then we add up the values for each good and divide by the total value in the base year. 
For video games:
(10 x 100) + (11 x 25) = 1,225
For pistachios: 
(6 x 100) + (7 x 25) = 775
Total value in 2018:
1,225 + 775 = 2,000
Laspeyres index = (2,000 / 2,000) x 100 = 100
This means that the total value of goods produced in 2018 was the same as in the base year. Therefore, there was no inflation between 2017 and 2018.

Refer to the Following Table When Answering the Following Questions