a. Use a Laspeyres index to determine how much prices have changed from year 1 toyear 2. (Hint: You will first construct real GDP growth using Laspeyres index)b. Use Paasche index to determine how much prices have changed from year 1 to year 2.(Hint: You will first construct real GDP growth using Paasche index)c. Use a chain weighted index to determine how much prices have changed from year 1to year 2. d) What is the advantage of using chain weighting? What is one disadvantage? This question is based on the material in Chapter 2 of thetextbook. The economy produces three goods: Cell Phones, Computers and Cars. In thiseconomy, cell phone and computer prices have been falling over time, while car prices haveincreased over time. The prices and quantities of these goods, in two different years (year 1and year 2), are given below12Quantity of Cell PhonesQuantity of ComputersQuantity of CarsPrice of Cell Phones ($)Price of Computers ($)Price of Cars ($)1001505010010121008010006005000 8000

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Answered: Use a Laspeyres index to determine how…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

a. Use a Laspeyres index to determine how much prices have changed from year 1 to
year 2.
(Hint: You will first construct real GDP growth using Laspeyres index)

b. Use Paasche index to determine how much prices have changed from year 1 to year 2.

(Hint: You will first construct real GDP growth using Paasche index)

c. Use a chain weighted index to determine how much prices have changed from year 1
to year 2.
d) What is the advantage of using chain weighting? What is one disadvantage?

This question is based on the material in Chapter 2 of the
textbook. The economy produces three goods: Cell Phones, Computers and Cars. In this
economy, cell phone and computer prices have been falling over time, while car prices have
increased over time. The prices and quantities of these goods, in two different years (year 1
and year 2), are given below
1
2
Quantity of Cell Phones
Quantity of Computers
Quantity of Cars
Price of Cell Phones ($)
Price of Computers ($)
Price of Cars ($)
100
150
50
100
10
12
100
80
1000
600
5000 8000

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