Question

1. Describe, in your own words, the Laspeyres Index, the Paasche Index, and the Fisher Index (chain-weighting).

2. Consider a country that only produces cars, cantaloupes, and catamarans. Complete the following table by filling in the missing entries.

ercent change FY2014-15 FY 2014 FY 2015 Number of cars produced 100 125 Quintals of cantaloupes grown5,000 4,650 600 Number of catamarans produced450 Price of cars Price of cantaloupes Price of catamarans $4,000$4,050 $65 $900 Number of catamarans produced450 Number of catamarans produced450 $80 $1.000 600 600 Real GDP in 2014 prices Real GDP in 2015 prices Real GDP in chained prices (benchmarked to 2015)

3. Calculate the inflation rate for the 2014-15 period using the GDP deflator based on the Laspeyres Index, the Paasche Index, and the Fisher (chain-weighted) Index.

Answer 1

Table 1

	Quantity		Price		Percentage Change
Items	2014	2015	2014	2015	Price	Quantity
Car	100	125	4000	4050	25.0%	1.3%
Cantaloup	5000	4650	65	80	-7.0%	23.1%
catamaran	450	600	900	1000	33.3%	11.1%
Real GDP in 2014 prices	1130000	1255000
Real GDP in 2015 prices	1342250	1478250
Real GDP in chained prices (benchmark=2015)	1249736.12	1478250

3.

The three indexes using the formula above is calculated below

	2014	2015
L Index	100	101.25
P Index	100	117.79
F Index	100	109.21

Inflation using GDP deflator between 2014 and 2015 is calculated as the percentage change in CPI. As 2014 is the base year assumed, the inflation is only the difference between two-year indexes.

	2014	2015	Inflation
L Index	100	101.25	1.3
P Index	100	117.79	17.8
F Index	100	109.21	9.2