When prices of different goods are increasing by different amounts, the price index that will rise the fastest is:
A) Fisher's ideal index.
B) the CPI.
C) the GDP deflator.
D) a Paasche index.

Question

Quizplus · Accepted Answer

The CPI, or Consumer Price Index, tends to rise the fastest among the options given when prices of different goods are increasing by different amounts. This is because the CPI is based on a fixed basket of goods and services, making it more sensitive to price changes in those specific items compared to indices like the GDP deflator, which reflects prices for all domestically produced goods and services, or the Paasche and Fisher indices, which adjust the basket over time or use a hybrid approach, respectively.

When Prices of Different Goods Are Increasing by Different Amounts