Question

Which Index Number method has an upward bias?; 1) Laspeyre's method; 2) Bowley's method; 3) Passche's method; 4) Fisher's method

Answer 1

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Here's your Answer

Option A.Laspeyre's method.

Answer 2

Laspeyre's method had an upward bias.

• The Laspeyre's index is thought to have an inherent upward bias since customers are thought to gradually shift their purchasing habits away from higher inflation goods over time.
• For the Paasche index, the opposite is true
• The arithmetic mean of Laspeyre's and Paasche's method results in Bowley's Index. This is free from bias
• The geometric mean of Laspeyre's and Paasche's method results in Bowley's Index. This is free from bias

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