PRC-2 · Chapter 9 · Question 5 of 60
Which characteristic is a primary limitation of using the Paasche Price Index in practice?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) It requires the denominator to be recalculated every single year using current quantities.
Explanation
Because the Paasche index uses current year quantities (q1) for its weights, both the numerator and the denominator must be fully recalculated each year, requiring extensive new data collection annually.
More Indices MCQs
- Q7How is the 'purchasing power of money' mathematically related to a general price index like the Consumer Price Index (CPI)?
- Q8If a worker's nominal monthly salary increases from Rs. 50,000 to Rs. 60,000, but the relevant price index rises from 100 to 125, what has…
- Q9When constructing an index using the 'Simple Aggregate Method', what is a major structural flaw?
- Q10Which specific statistical index tracks the cost of a fixed basket of goods and services typically purchased by an average household?
- Q11In standard index construction, why do economists occasionally perform a process known as 'base shifting'?