The Table Below Is the Laspeyres Price Index for a Basket

question 23

Essay

The table below is the Laspeyres price index for a basket of goods related to the Computer IT industry. $\begin{array}{|c|c|c|c|c|c|c|c|c|c|c|c|c|}\hline \text { Year } & 1988 & 1989 & 1990 & 1991 & 1992 & 1993 & 1994 & 1995 & 1996 & 1997 & 1998 & 1999 \\\hline \text { Base } & & & & & & & & & & & & \\1988 & 100 & 101.5 & 104.2 & 103.9 & 106.2 & 107.8 & 107.9 & 108 & 108.5 & 109 & 110 & 111.5 \\\hline \begin{array}{c}\text { Base } \\2005\end{array} & & & & & & & & & & & & \\\hline\end{array}$

$\begin{array}{|c|c|c|c|c|c|c|c|c|c|c|c|c|}\hline \text { Year } & 2001 & 2002 & 2003 & 2004 & 2005 & 2006 & 2007 & 2008 & 2009 & 2010 & 2011 & 2012 \\\hline \begin{array}{c}\text { Base } \\1988\end{array} & 112.4 & 113.1 & 114 & 115.4 & 117 & 119.2 & 121.6 & 123.8 & 124.9 & 125.6 & 129.3 & 132.8 \\\hline \begin{array}{c}\text { Base } \\2005\end{array} & & & & & & & & & & & & \\\hline\end{array}$

(a) Calculate and interpret the percentage price change from 2005 to 2013, using the 1988 base
index.
(b) Change the base of this index series to 2005. Explain why a base change may be useful.
(c) Using the series with base 2005 that you created in part (b) recalculate the percentage price change from 2005 to 2013. Interpret.
(d) Compare your answers from parts (a) and (c), in particular explain which value is a change in percentage points and which value is the percentage change.

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