Assume that the market basket of goods and services purchased in 1995 by average family in the United States costs $14,000 in 1995 prices, whereas the same basket costs 21,000 in 2005 prices. However, the basket of goods and services actually purchased by average family in 2005 costs $20,000 in 2005 prices, whereas this same basket would cost $15,000 in 95 prices. Given this data, what would be a Laspeyres index (fixed basket as in CPI) of 2005 prices? What would be a Paasche index (changing basket) of 2005 prices?

Question