Suppose the base year bundle of goods X, Y, and Z is: (X^(b), Y^(b), Z^(b))= (5,700,60) and the base year (vector of) prices is: (Px^(b),Py^(b), Pz^(b))=(1000,5,25) The following year the (vector of) prices is: (Px^(b+1), Py^(b+1), Pz^(b+1))= (1010,5.05,27.50) 1) Compute the inflation using a Laspeyres Price Index, like the original form of the Consumer Price Index (CPI). 2) Compute the inflation index an alternative way. Calculate the price increase for each good separately and then take a weighted average of these price increases, using as weights the budget shares spent on each good in the base year. For example, for good X use weight Sx^(b)= (Px^(b)X^(b))/(Px^(b)X^(b)+ Py^(b)Y^(b)+Pz^(b)Z^(b)) Please show all work very confused
Suppose the base year bundle of goods X, Y, and Z is:
(X^(b), Y^(b), Z^(b))= (5,700,60)
and the base year (vector of) prices is:
(Px^(b),Py^(b), Pz^(b))=(1000,5,25)
The following year the (vector of) prices is:
(Px^(b+1), Py^(b+1), Pz^(b+1))= (1010,5.05,27.50)
1) Compute the inflation using a Laspeyres
(CPI).
2) Compute the inflation index an alternative way. Calculate the price increase for each good separately
and then take a weighted average of these price increases, using as weights the budget shares spent on each
good in the base year. For example, for good X use weight
Sx^(b)= (Px^(b)X^(b))/(Px^(b)X^(b)+ Py^(b)Y^(b)+Pz^(b)Z^(b))
Please show all work very confused
The Laspeyres Price Index, named after the French economist Étienne Laspeyres, is a system used to measure inflation or adjustments in the average charge stage of a constant basket of items and offerings over time. It is a many times used rate index in economics and serves as the groundwork for many client charge indices (CPIs) in a number of countries.
Step by step
Solved in 3 steps with 15 images
