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      Question

      Laspeyre's formula has ___________ bias and Paasche's

      formula has _________ bias.
      A an upward, a downward Correct Answer Incorrect Answer
      B a downward, an upward Correct Answer Incorrect Answer
      C an upward, an upward Correct Answer Incorrect Answer
      D a downward, a downward Correct Answer Incorrect Answer

      Solution

      Laspeyre's formula has an upward bias and Paasche's formula has a downward bias. This is because Laspeyre’s formula takes base year variables as weights whereas Paasche’s formula takes current year variables as weights.

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