7.5 - ISSUES IN THE CONSTRUCTION OF AN INDEX NUMBER
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Practice Questions
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What is the purpose of an index number?
💡 Hint: Think about why we need to track prices or production.
Define a base year.
💡 Hint: What do we compare other years against?
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Interactive Quizzes
Quick quizzes to reinforce your learning
What is a volume index primarily focused on?
💡 Hint: Think about what it captures in terms of goods.
True or False: The base year should reflect extreme economic conditions.
💡 Hint: What kind of economic situation provides a clear reference?
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Challenge Problems
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A country used 2005 as a base year with inflation rates peaking in 2010 and 2015. Critically assess how this could mislead economic policies.
💡 Hint: Think about the difference economic conditions could have on trends.
Examine how methodology changes (switching from Laspeyre's to Paasche's) could impact the reported inflation rate over a decade.
💡 Hint: Consider how consumers adapt their choices in response to price changes.
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