Question

Table 1: GDP country X:2017

	Cars	Restaurant meals
Price	$20,000	$18
Quantity	9	10,000

Table 2:GDP Country X:2018

	Cars	Restaurant Meals
Price	$20,000	$40
Quantity	9	6,000

1. You are interested in calculating real GDP growth in Country X. (Use Table 1 and 2 to answer the following.)

a. Calculate the Laspeyres Quantity Index (from 2017 to 2018)

b. Calculate the Paasche Quantity Index (from 2017 to 2018)

c. Calculate the Fisher Quantity Index (from 2017 to 2018)

Answer 1

(a) Laspeyres Quantity Index = (P₂₀₁₈ x Q₂₀₁₇) / (P₂₀₁₇ x Q₂₀₁₇)] x 100

= [(20,000 x 9 + 40 x 10,000) / (20,000 x 9 + 18 x 10,000)] x 100

= [(180,000 + 400,000) / (180,000 + 180,000)] x 100

= (580,000 / 360,000) x 100

= 161.11

(b) Paasche Quantity Index = (P₂₀₁₈ x Q₂₀₁₈) / (P₂₀₁₇ x Q₂₀₁₈)] x 100

= [(20,000 x 9 + 40 x 6,000) / (20,000 x 9 + 18 x 6,000)] x 100

= [(180,000 + 240,000) / (180,000 + 108,000)] x 100

= (420,000 / 288,000) x 100

= 145.83

(c) Fisher's quantity index = [(Laspeyers Index x Paasche Index)]

= [(161.11 x 145.83)]

= (23,495.21)

= 153.28