If all prices increase by 20%,
A)the Paasche price index increases by more than 20% and the Laspeyres price index increases by less than 20%.
B)the Laspeyres price index increases by more than 20% and the Paasche price index increases by less than 20%.
C)both the Paasche price index and the Laspeyres price index increase by more than 20%.
D)both the Paasche price index and the Laspeyres price index increase by exactly 20%.
E)both the Paasche price index and the Laspeyres price index increase by less than 20%.

Question

Quizplus · Accepted Answer

The Paasche and Laspeyres price indices measure the price changes between two periods using different base periods for quantities. However, if all prices increase uniformly by 20%, both indices will accurately reflect this 20% increase, as the change in price is uniform across all goods, making the choice of base period for quantities irrelevant in this specific scenario.

If All Prices Increase by 20