Economics - Economics Section 2
- Option : C
- Explanation : Stagflation is an economic state resulting from a combination of a high inflation rate and a high level of unemployment.
- Option : A
- Explanation : In a Laspeyres index upward biases such as substitution bias and quality bias tend to overstate the actual cost of living.
- Option : B
- Explanation : Using a fixed basket of goods and services to measure price indices results in three biases: substitution bias, quality (not quantity) bias, and new product bias.
30. Which of the following statements regarding price indices is least likely correct?
- A
The Fisher index is an arithmetic mean of the Laspeyres index and the Paasche index.
- B
The Laspeyres index is a price index created by using a fixed basket of goods and services.
- C
An upward bias in the inflation rate is created when new products are not included in the fixed basket of goods and services.
- Option : A
- Explanation : The Fisher index is a geometric mean of the Laspeyres index and the Paasche index.
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