Remember That the Laspeyres Price Index Uses the Old Quantities

question 41

Multiple Choice

Remember that the Laspeyres price index uses the old quantities for the weights. In 1991, good x cost $5 and good y cost $1. The current price of good x is $7 and the current price of good y is $6. In 1991 the consumption bundle was (x, y) = (2, 4) . The current consumption bundle is (x, y) = (5, 3) . The Laspeyres index of current prices relative to 1991 prices is closest to which of the following numbers?

• A) 3.79
• B) 2.71
• C) 0.26
• D) 1.89
• E) 1.26

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