1. A quantity index: a,b,c, or d? and Price Index: a,b,c, or d? a. holds prices...

1. A quantity index: a,b,c, or d? and Price Index: a,b,c, or d?

a. holds prices constant and allows quantities to vary

b. holds quantities constant and allows prices to vary

c. allows both prices and quantities to vary

d. holds both prices and quantities constant

Expert Solution

Quantity Index measures the changes in the quantity demanded of a basket of goods at a fixed price during a specified time period. The Real Gross Domestic Product is an example of a quantity index that takes into account the consumption levels over a specified time period while choosing a single base year for each time period, for obtaining a measure of total output that is unaffected by changes in price levels.

Hence, option A is the correct answer for QUANTITY INDEX.

Price Index, on the other hand, measures changes in price levels for a fixed basket of goods and services. The Consumer Price Index (CPI) is an example of a price index as it is calculated for a fixed basket of goods and services.

Hence, option B is the correct answer answer for PRICE INDEX.

Both price and quantity indices are used to track the movement of prices and quantities within an economy that is helpful in formulating policies at the national level.

(Reference : SAS Institute)

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