If we calculate the real GDP using the initial period's prices, we are using a ________ index. If, instead, we use the final period's prices, we are using a ________ index.
A) Paasche; chain-weighted
B) Laspeyres; chain-weighted
C) Laspeyres; Paasche
D) Paasche; Laspeyres
E) chain-weighted; Fisher

Question

Quizplus · Accepted Answer

When we calculate the real GDP using the initial period's prices, we are using the Laspeyres index. When we use the final period's prices, we are using the Paasche index. The best choice is C because it correctly matches these definitions. Choice A is incorrect because Paasche index is associated with using the final period's prices, not the initial period's prices. Choice B is also incorrect for similar reasons. Choice D is incorrect because it matches the definitions backwards. Choice E is incorrect because it mentions chain-weighted and Fisher indices which are not relevant to this question.

If We Calculate the Real GDP Using the Initial Period's