Gce Model Questions Vol1 2025 Economics Question 23

Practice objective / multiple choice question 23 from the 2025 Gce Model Questions Vol1 Economics examination.

Gce Model Questions Vol1 2025 Economics Objective / Multiple Choice Medium Difficulty
Question 23 GCE_MODEL_QUESTIONS_VOL1 • 2025 • ECONOMICS • objective

In year 0 a consumer purchases a basket containing 2 units of good A at £5 each and 3 units of good B at £4 each. In year 2 the prices are £7 for A and £3.80 for B, and the consumer's actual consumption in year 2 changes to 1.5 units of A and 2.5 units of B. (a) Using the Laspeyres formula, calculate the inflation rate between year 0 and year 2 (expressed as a percentage, rounded to two decimal places). (b) Using the Paasche formula, calculate the inflation rate between year 0 and year 2 (percentage, rounded to two decimal places). (c) Which index indicates a higher rate of inflation?

Answer Options

A. Laspeyres inflation = 16.78 %; Paasche inflation = 15.10 %; Laspeyres shows the higher inflation.
Correct Answer B. Laspeyres inflation = 15.45 %; Paasche inflation = 14.29 %; Laspeyres shows the higher inflation.
C. Laspeyres inflation = 13.20 %; Paasche inflation = 12.85 %; Paasche shows the higher inflation.
D. Laspeyres inflation = 14.00 %; Paasche inflation = 14.00 %; Both indices indicate the same inflation.
Correct Answer
B
Correct Option:
Laspeyres inflation = 15.45 %; Paasche inflation = 14.29 %; Laspeyres shows the higher inflation.

About This Question

This is Gce Model Questions Vol1 2025 Economics Question 23. It is one of the objective questions from the 2025 Gce Model Questions Vol1 Economics examination.

Difficulty level: Medium .

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