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 Paache 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 an earlier period, making it less accurate in reflecting changes in the consumer basket over time. A and B are incorrect because the Paasche index is generally more expensive and requires more data than the Laspeyres index. D is incorrect because the Laspeyres index only requires updating weights if there are significant changes in the consumer basket, and previous years' index numbers do not need to be recomputed if the weights remain the same.

Which of the Following Statements Is True About the Comparison