45 - ● Paasche index Amount of money at current-year...

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20:45 cost-of-living index     Ratio of the present cost of a typical bundle of  consumer goods and services compared with the cost during a base period. ideal cost-of-living index     Cost of attaining a given level of utility at  current prices relative to the cost of attaining the same utility at base-year prices. Laspeyres price index     Amount of money at current year prices that an  individual requires to purchase a bundle of goods and services chosen in a base  year divided by the cost of purchasing the same bundle at base-year prices. Comparing Ideal Cost-of-Living and Laspeyres Indexes     The Laspeyres  index overcompensates Rachel for the higher cost of living, and the Laspeyres  cost-of-living index is, therefore, greater than the ideal cost-of-living index.
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Unformatted text preview: ● Paasche index Amount of money at current-year prices that an individual requires to purchase a current bundle of goods and services divided by the cost of purchasing the same bundle in a base year. Comparing the Laspeyres and Paasche Indexes Just as the Laspeyres index will overstate the ideal cost of living, the Paasche will understate it because it assumes that the individual will buy the current-year bundle in the base period. ● fixed-weight index Cost-of-living index in which the quantities of goods and services remain unchanged. ● chain-weighted price index Cost-of-living index that accounts for changes in quantities of goods and services. 20:45 20:45...
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This note was uploaded on 10/26/2010 for the course ECON 203 at USC.

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45 - ● Paasche index Amount of money at current-year...

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