Index Numbers

2011 Pearson Education, Inc
Statistics for Business and

Economics
Chapter 13
Time Series:
Descriptive Analyses, Models, &
Forecasting
Content
13.1 Descriptive Analysis: Index Numbers
13.2 Descriptive Analysis: Exponential
Smoothing
13.3 Time Series Components
13.4 Forecasting: Exponential Smoothing
13.5 Forecasting Trends: Holts Method
13.6 Measuring Forecast Accuracy: MAD and
RMSE
Content
13.7 Forecasting Trends: Simple Linear
Regression
13.8 Seasonal Regression Models
13.9 Autocorrelation and the Durbin-Watson
Test
Learning Objectives
Focus on methods for analyzing data

generated by a process over time (i.e., time
series data).
Present descriptive methods for
characterizing time series data.
Present inferential methods for forecasting
future values of time series data.
Time Series
Data generated by processes over time
Describe and predict output of processes
Descriptive analysis
Understanding patterns
Inferential analysis
Forecast future values
13.1
Descriptive Analysis:
Index Numbers
Index Number
Measures change over time relative to a

base period
Price Index measures changes in price

e.g. Consumer Price Index (CPI)
Quantity Index measures changes in

quantity
e.g. Number of cell phones produced
annually
Steps for Calculating

a Simple Index Number
1. Obtain the prices or quantities for the
commodity over the time period of interest.
2. Select a base period.
3. Calculate the index number for each period
according to the formula
Index number at time t
Time series value at time t
100
Time series value at base period


a Simple Index Number
Symbolically,
Yt
It
100
Y0
where It is the index number at time t, Yt is
the time series value at time t, and Y0 is
the time series value at the base period.
Simple Index Number Example

The table shows the price per
gallon of regular gasoline in the
U.S for the years 1990 2006.
Use 1990 as the base year (prior
to the Gulf War). Calculate the
simple index number for 1990,
1998, and 2006.
Year
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
$
1.299
1.098
1.087
1.067
1.075
1.111
1.224
1.199
1.03
1.136
1.484
1.42
1.345
1.561
1.852
2.27
2.572
Simple Index Number Solution

1990 Index Number (base period)
1990price
1.299
100
100 100
1.299
1990price
1998 Index Number

1998price
1.03
100
100 79.3
1.299
1990price
Indicates price had dropped by 20.7% (100

79.3) between 1990
and 1998.
Simple Index Number Solution

2006 Index Number
2006price
2.572
100
100 198
1.299
1990price
Indicates price had risen by 98% (100 198)

between 1990 and 2006.
Simple Index Numbers

19902006
Simple Index Numbers

19902006
Composite Index Number

Made up of two or more commodities
A simple index using the total price or total
quantity of all the series (commodities)
Disadvantage: Quantity of each commodity
purchased is not considered
Composite Index Number

Example
The table on the next slide shows the closing
stock prices on the last day of the month for
DaimlerChrysler, Ford, and GM between 2005
and 2006. Construct the simple composite
index using January 2005 as the base period.
(Source: Nasdaq.com)
Simple Composite Index

Solution
First compute the total for
the three stocks for each
date.

Solution
Now compute the

simple composite index
by dividing each total by
the January 2005 total.
For example, December
2006:
12 / 06price
100
1/ 05price
99.64
100
95.49
104.3

Solution

Solution
Weighted Composite Price

Index
A weighted composite price index weights the
prices by quantities purchased prior to
calculating totals for each time period. The
weighted totals are then used to compute the
index in the same way that the unweighted totals
are used for simple composite indexes.
Laspeyres Index
Uses base period quantities as weights
Appropriate when quantities remain approximately
constant over time period
Example: Consumer Price Index (CPI)
Steps for Calculating a

Laspeyres Index
1. Collect price information for each of the k
price series to be used in the composite index.
Denote these series by P1t, P2t, , Pkt .
2. Select a base period. Call this time period t0.
3. Collect purchase quantity information for the
base period. Denote the k quantities by
Q1t , Q2t ,K ,Qkt .
0
0
0
4. Calculate the weighted totals for each
time
k
Qit Pit
period according
to
the
formula
0
i1

Laspeyres Index
5. Calculate the Laspeyres index, It, at time t by
taking the ratio of the weighted total at time t
to the base period weighted total and
multiplying by 100that is,
k
It
it0
Pit
it0
Pit
i1
k
i1
100
Laspeyres Index Number

Example
The table shows the closing stock prices on
1/31/2005 and 12/29/2006 for Daimler
Chrysler, Ford, and GM. On 1/31/2005 an
investor purchased the indicated number of
shares of each stock. Construct the Laspeyres
Index using 1/31/2005 as the base period.
DaimlerChrysler
GM
Ford
100
500
200
1/31/2005 Price
45.51
13.17
36.81
12/29/2006 Price
61.41
7.51
30.72
Shares Purchased
Laspeyres Index Solution

Weighted total for base period (1/31/2005):
k
Q
i 1
it0
Pit0 100(45.51) 500(13.17) 200(36.81)

18498
Weighted total for 12/29/2006:

k
Q
i 1
it0
Pit 100(61.41) 500(7.51) 200(30.72)

16040
Laspeyres Index Solution

k
It
Q
i 1
k
i ,1/ 31/ 05 i ,12 / 29 / 06
Q
i 1
100
i ,1/ 31/ 05 i ,1/ 31/ 05
16040
100
18498
86.7
Indicates portfolio value had decreased by
13.3% (10086.7)
between
1/31/2005
and
12/29/2006.
Paasche Index
Uses quantities for each period as weights
Appropriate when quantities change over time
Compare current prices to base period prices at

current purchase levels
Disadvantages
Must know purchase quantities for each time
period
Difficult to interpret a change in index when base
period is not used

Paasche Index
1. Collect price information for each of the k
price series to be used in the composite index.
Denote these series by P1t, P2t, , Pkt .
2. Select a base period. Call this time period t0.
3. Collect purchase quantity information for the
base period. Denote the k quantities by
Q1t , Q2t ,K ,Qkt .
0

Paasche Index
4. Calculate the Paasche index for time t by
multiplying the ratio of the weighted total at
time t to the weighted total at time t0 (base
period) by 100, where the weights used are
the purchase quantities for time period t.
k
Thus,
Qit Pit
I t i1
100
k
Qit Pit
0
i1 Education, Inc
2011 Pearson
Paasche Index Number Example

The table shows the 1/31/2005 and 12/29/2006
prices and volumes in millions of shares for
DaimlerChrysler, Ford, and GM. Calculate the
Paasche Index using 1/31/2005 as the base
period. (Source: Nasdaq.com)
DaimlerChrysler
1/31/2005
12/29/2006
Price
45.51
61.41
Volume
.8
.2
Ford
Price
13.17
7.51
Volume
7.0
10.0
GM
Price
36.81
30.72
Volume
5.6
6.1
Paasche Index Solution

k
I1/ 31/ 05
i 1
k
i 1
i ,1/ 31/ 05 i ,1/ 31/ 05
100
i ,1/ 31/ 05 i ,1/ 31/ 05
.8(45.51) 7(13.17) 5.6(36.81)
100
.8(45.51) 7(13.17) 5.6(36.81)
100
Paasche Index Solution

P
Q
k
I12 / 29 / 06
i 1
k
i12 / 29 / 06 i12 / 29 / 06
Q
i 1
100
i12 / 29 / 06 i1/ 31/ 05
.2(61.41) 10(7.51) 6.1(30.72)
100
.2(45.51) 10(13.17) 6.1(36.81)
274.774
100 75.2
365.343
12/29/2006 prices represent a 24.8% (100 75.2)

decrease from 1/31/2005 (assuming quantities were at
12/29/2006 levels for
both
2011
Pearsonperiods)
Education, Inc
13.2
Descriptive Analysis:
Exponential Smoothing
Type of weighted average
Removes rapid fluctuations in time series (less
sensitive to shortterm changes in prices)
Allows overall trend to be identified
Used for forecasting future values
Exponential smoothing constant (w) affects
smoothness of series
Constant
Exponential smoothing constant, 0 < w < 1
w close to 0
More weight given to previous values of time
series
Smoother series
w close to 1
More weight given to current value of time series
Series looks similar to original (more variable)
Steps for Calculating an

Exponentially Smoothed Series
1. Select an exponential smoothing constant, w,
between 0 and 1. Remember that small
values of w give less weight to the current
value of the series and yield a smoother
series. Larger choices of w assign more
weight to the current value of the series and
yield a more variable series.
Steps for Calculating an

Exponentially Smoothed Series
2. Calculate the exponentially smoothed series
Et from the original time series Yt as follows:
E1 = Y1
E2 = wY2 + (1 w)E1
E3 = wY3 + (1 w)E2
Et = wYt + (1 w)Et1
Example
The closing stock prices on the last
day of the month for Daimler
Chrysler in 2005 and 2006 are
given in the table. Create an
exponentially smoothed series
using w = .2.
Solution
E1 = 45.51
E2 = .2(46.10) + .8(45.51) = 45.63
E3 = .2(44.72) + .8(45.63) = 45.45

E24 = .2(61.41) + .8(53.92) = 55.42
Solution
E1 = 45.51
E2 = .2(46.10) + .8(45.51) = 45.63
E3 = .2(44.72) + .8(45.63) = 45.45

E24 = .2(61.41) + .8(53.92) = 55.42

Dec-06
Nov-06
Oct-06
Sep-06
Aug-06
Jul-06
Jun-06
May-06
Apr-06
Mar-06
Feb-06
Jan-06
Dec-05
30
Nov-05
40
Oct-05
Sep-05
Aug-05
Jul-05
Jun-05
60
May-05
Apr-05
Mar-05
Feb-05
Jan-05
Solution
70
Actual Series
50
Smoothed Series
(w = .2)
20
10
Thinking Challenge
The closing stock prices on the last
day of the month for Daimler
Chrysler in 2005 and 2006 are
given in the table. Create an
exponentially smoothed series
using w = .8.
Solution
E1 = 45.51
E2 = .8(46.10) + .2(45.51) = 45.98
E3 = .8(44.72) + .2(45.98) = 44.97

E24 = .8(61.41) + .2(57.75) = 60.68

Dec-06
Nov-06
Oct-06
Sep-06
Aug-06
Jul-06
Jun-06
Smoothed Series
(w = .2)
May-06
Apr-06
Mar-06
Feb-06
Jan-06
Dec-05
Nov-05
Oct-05
30
Sep-05
40
Aug-05
Jul-05
Jun-05
60
May-05
Apr-05
Mar-05
Feb-05
Jan-05
Solution
70
Actual Series
50
Smoothed Series
(w = .8)
20
10
13.3
Time Series Components
Descriptive v. Inferential
Analysis
Descriptive Analysis
Picture of the behavior of the time series
e.g. Index numbers, exponential smoothing
No measure of reliability
Inferential Analysis
Goal: Forecasting future values
Measure of reliability

Additive Time Series Model Yt = Tt + Ct + St + Rt
Tt = secular trend (describes longterm movements of Yt)
Ct = cyclical effect (describes fluctuations about the
secular trend attributable to business and economic
conditions)
St = seasonal effect (describes fluctuations that recur
during specific time periods)
Rt = residual effect (what remains after other components
have been removed)
13.4
Forecasting:
Exponentially Smoothed
Forecasts
Assumes the trend and seasonal component are
relatively insignificant
Exponentially smoothed forecast is constant for all
future values
Ft+1 = Et
Ft+2 = Ft+1
Ft+3 = Ft+1
Use for shortterm forecasting only
Calculation of Exponentially
Smoothed Forecasts
1. Given the observed time series Y1, Y2, , Yt,
first calculate the exponentially smoothed
values E1, E2, , Et, using
E 1 = Y1
E2 = wY2 + (1 w)E1
M
Et = wYt + (1 w)Et 1
Calculation of Exponentially
Smoothed Forecasts
2. Use the last smoothed value to forecast the
next time series value:
Ft +1 = Et
3. Assuming that Yt is relatively free of trend and
seasonal components, use the same forecast
for all future values of Yt:
Ft+2 = Ft+1
Ft+3 = Ft+1
Forecasting Example
The closing stock prices on the
last day of the month for
DaimlerChrysler in 2005 and
2006 are given in the table
along with the exponentially
smoothed values using w = .2.
Forecast the closing price for
the January 31, 2007.
Forecasting Solution
F1/31/2007 = E12/29/2006 = 55.42
The actual closing price on 1/31/2007
for DaimlerChrysler was 62.49.
Forecast Error = Y1/31/2007 F1/31/2007
= 62.49 55.42
= 7.07
13.5
Forecasting Trends:
Holts Method
The Holt Forecasting Model

Accounts for trends in time series
Two components
Exponentially smoothed component, Et
Smoothing constant 0 < w < 1
Trend component, Tt
Smoothing constant 0 < v < 1
Close to 0: More weight to past trend
Close to 1: More weight to recent trend

Components of the Holt
Forecasting Model
1. Select an exponential smoothing constant w
between 0 and 1. Small values of w give less
weight to the current values of the time series
and more weight to the past. Larger choices
assign more weight to the current value of the
series.

Forecasting Model
2. Select a trend smoothing constant v between 0
and 1. Small values of v give less weight to the
current changes in the level of the series and
more weight to the past trend. Larger values
assign more weight to the most recent trend of
the series and less to past trends.

Forecasting Model
3. Calculate the two components, Et and Tt, from
the time series Yt beginning at time t = 2 :
E2 = Y2
and T2 = Y2 Y1
E3 = wY3 + (1 w)(E2 + T2)

T3 = v(E3 E2) + (1 v)T2
Et = wYt+2011(1
Education,
w)(Et1
Pearson
Inc + Tt1)
Holt Example
The closing stock prices on the
last day of the month for
DaimlerChrysler in 2005 and
2006 are given in the table.
Calculate the HoltWinters
components using w = .8 and
v = .7.
Holt Solution
w = .8 v = .7
E2 = Y2 and T2 = Y2 Y1
E2 = 46.10 and T2 = 46.10 45.51 = .59
E3 = wY3 + (1 w)(E2 + T2)
E3 = .8(44.72) + .2(46.10 + .59) = 45.114
T3 = v(E3 E2) + (1 v)T2
T3 = .7(45.114 46.10) + .3(.59) = .5132
Holt Solution
Completed series:
w = .8 v = .7
Holt Solution
Holt exponentially smoothed (w = .8 and v = .7)
Smoothed
Actual
Holts Forecasting Methodology

1. Calculate the exponentially smoothed and
trend components, Et and Tt, for each
observed value of Yt (t 2) using the formulas
given in the previous box.
2. Calculate the one-step-ahead forecast using
Ft+1 = Et + Tt
3. Calculate the k-step-ahead forecast using
Ft+k = Et + kTt
Holt Forecasting Example

Use the Holt series to
forecast the closing price
of DaimlerChrysler stock
on 1/31/2007 and
2/28/2007.
Holt Forecasting Solution

1/31/2007 is onestepahead:
F1/31/07 = E12/29/06 + T12/29/06
= 61.39 + 3.00 = 64.39
2/28/2007 is twostepsahead:
F2/28/07 = E12/29/06 + 2T12/29/06
= 61.39 + 2(3.00) = 67.39
Holt Thinking Challenge

The data shows the
average undergraduate
tuition at all 4year
institutions for the years
19962004 (Source: U.S.
Dept. of Education).
Calculate the Holt
Winters components
using w = .7 and v = .5.
Holt Solution
w = .7 v = .5
E2 = Y2 and T2 = Y2 Y1
E2 = 9206 and T2 = 9206 8800 = 406
E3 = wY3 + (1 w)(E2 + T2)
E3 = .7(9588) + .3(9206 + 406) = 9595.20
T3 = v(E3 E2) + (1 v)T2
T3 = .5(9595.20 9206) + .5(406) = 397.60
Holt Solution
Completed series
Holt Solution
Tuition
HoltWinters exponentially smoothed (w = .7

and v = .5)
Actual
Smoothed
Holt Forecasting Thinking

Challenge
Use the HoltWinters series to forecast tuition in
2005 and 2006
Holt Forecasting Solution

2005 is onestepahead: F11 = E10 + T10
13672.72 + 779.76 = $14,452.48
2006 is 2stepsahead: F12 = E10 + 2T10
=13672.72 +2(779.76) = $15,232.24
13.6
Measuring Forecast Accuracy:
MAD and RMSE
Mean Absolute Deviation

Mean absolute difference between the forecast
and actual values of the time series
nm
MAD
Y F
tn1
where m = number of forecasts used

Mean Absolute Percentage

Error
Mean of the absolute percentage of the
difference between the forecast and actual
values of the time series
nm
MAPE
tn1
Y F
t
Yt
m
100

Root Mean Squared Error

Square root of the mean squared difference
between the forecast and actual values of the
time series
nm
RMSE
Y F
tn1

Forecasting Accuracy
Example
Using the DaimlerChrysler data from 1/31/2005 through
8/31/2006, three time series models were constructed and
forecasts made for the next four months.
Model I: Exponential smoothing (w = .2)
Model II: Exponential smoothing (w = .8)
Model III: HoltWinters (w = .8, v = .7)
Example
Model I
MADI
2.31 4.66 6.01 9.14

4
2.31
MAPEI
RMSEI
49.96
4.66
56.93
6.01
58.28
5.53
9.14
61.41
2.31
4.66 6.01 9.14

2
100 9.50
2
6.06
Example
Model II
MADII
2.82 4.15 5.50 8.63

4
2.82
MAPEII
RMSEII
49.96
4.15
56.93
5.50
58.28
5.28
8.63
61.41
2.82
4.15 5.50 8.63

2
100 9.11
2
5.70
Example
Model III
MADIII
3.45 2.42 2.67 4.71

4
3.45
MAPEIII
RMSEIII
49.96
2.42
56.93
2.67
58.28
3.31
3.45
4.71
61.41
100 5.85
2.42 2.67 4.71

2
3.44
13.7
Forecasting Trends:
Simple Linear Regression

Model: E(Yt) = 0 + 1t
Relates time series, Yt, to time, t
Cautions
Risky to extrapolate (forecast beyond observed
data)
Does not account for cyclical effects

Example
The data shows the average
undergraduate tuition at all 4
year institutions for the years
19962004 (Source: U.S.
Dept. of Education). Use least
squares regression to fit a
linear model. Forecast the
tuition for 2005 (t = 11) and
compute a 95% prediction
interval for the forecast.

Solution
From Excel
Yt 7997.533
528.158t

Solution
Yt 7997.533 528.158t

Solution
Forecast tuition for 2005 (t = 11):
Y11 7997.533 528.158(11) 13807.27
95% prediction interval:
1 tp t
y t / 2 s 1
n
SStt
13807.27 2.306 286.84
1 11 5.5
1
10
82.5
2011 Pearson
Inc
13006.21
y11Education,
14608.33
13.8
Seasonal Regression Models
Seasonal Regression Models

Takes into account secular trend and seasonal
effects (seasonal component)
Uses multiple regression models
Dummy variables to model seasonal
component
E(Yt) = 0 + 1t + 2Q1 + 3Q2 + 4Q3
where
1
if quarter i
Qi
0 Pearson
if Education,
not quarter
i
2011
Inc
13.9
Autocorrelation and the
Durbin-Watson Test
Autocorrelation
Time series data may have errors that are not
independent
Time series residuals: Rt Yt Yt
Correlation between residuals at different
points in time (autocorrelation)
1st order correlation: Correlation between
neighboring residuals (times t and t + 1)
Autocorrelation
Plot of residuals v. time for tuition data shows
residuals tend to group alternately into positive
and negative clusters
DurbinWatson Test
H0: No firstorder autocorrelation of residuals
Ha: Positive firstorder autocorrelation of
residuals
Test Statistic
t 2
Rt Rt 1
Rt
t 1
Interpretation of DurbinWatson d-Statistic

n
d
R R
t
t2
R
t
t1
t1
Range of d : 0 d 4
1. If the residuals are uncorrelated, then d 2.

2. If the residuals are positively autocorrelated,
then d < 2, and if the autocorrelation is very
strong, d 2.
3. If the residuals are negatively autocorrelated,
then d >2, and if the autocorrelation is very
strong, d 4. 2011 Pearson Education, Inc
Rejection Region for the Durbin

Watson d Test
Rejection region:
evidence of
positive
autocorrelation
dL
dU
Possibly significant
autocorrelation
Nonrejection region:
insufficient evidence of
positive autocorrelation
DurbinWatson d-Test for

Autocorrelation
One-tailed Test
Ha: Positive firstorder autocorrelation of
residuals
(or Ha: Negative firstorder autocorrelation)
Test Statistic
t 2
Rt Rt 1
n
t Inc
2011 Pearson Education,
t 1

Autocorrelation
Rejection Region:
d < dL,
[or (4 d) < dL,
If Ha : Negative first-order autocorrelation
where dL, is the lower tabled value
corresponding to k independent variables and n
observations. The corresponding upper value
dU, defines a possibly significant region
between dL, and dU,

Autocorrelation
Two-tailed Test
Ha: Positive or Negative firstorder
autocorrelation of residuals
Test Statistic
t 2
Rt Rt 1
n
t Inc
2011 Pearson Education,
t 1

Autocorrelation
Rejection Region:
d < dL, or (4 d) < dL,
where dL, is the lower tabled value
corresponding to k independent variables and n
observations. The corresponding upper value
dU, defines a possibly significant region
between dL, and dU,
Requirements for the Validity

of the d-Test
The residuals are normally distributed.
DurbinWatson Test Example

Use the DurbinWatson test to test for the
presence of autocorrelation in the tuition data.
Use = .05.
DurbinWatson Test Solution

H0: No 1storder
autocorrelation
Ha: Positive 1storder
autocorrelation
.05
10
1
n
=
k
=
Critical Value(s):
2
.88 1.32
DurbinWatson Solution
Test Statistic
t 2
Rt Rt 1
R
t
t 1
(152.1515 274.3091) 2 (5.9939 152.1515) 2 ... (463.8909 204.0485) 2
(274.3091) 2 (152.1515) 2 ... (463.8909) 2

.51
DurbinWatson Test Solution

H0: No 1storder
autocorrelation
Test Statistic:
d = .51
Ha: Positive 1storder

autocorrelation
.05
10
1
n
=
k
=
Critical Value(s):
2
.88 1.32
Decision:
Reject at = .05
Conclusion:
There is evidence of
d positive autocorrelation
Key Ideas
Time Series Data
Data generated by processes over time.
Key Ideas
Index Number
Measures the change in a variable over time
relative to a base period.
Types of Index numbers:
1. Simple index number
2. Simple composite index number
3. Weighted composite number (Laspeyers
index or Pasche index)
Key Ideas
1.
2.
3.
4.
Secular (long-term) trend

Cyclical effect
Seasonal effect
Residual effect
Key Ideas
Time Series Forecasting
Descriptive methods of forecasting with
smoothing:
1. Exponential smoothing
2. Holts method
Key Ideas
An Inferential forecasting method:
least squares regression
Key Ideas
Measures of forecast accuracy:
1. mean absolute deviation (MAD)
2. mean absolute percentage error (MAPE)
3. root mean squared error (RMSE)
Key Ideas
Problems with least squares regression
forecasting:
1. Prediction outside the experimental region
2. Regression errors are autocorrelated
Key Ideas
Autocorrelation
Correlation between time series residuals at
different points in time.
A test for first-order autocorrelation:
Durbin-Watson test

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2011 Pearson Education, Inc

Statistics for Business and

2011 Pearson Education, Inc

2011 Pearson Education, Inc

Focus on methods for analyzing data

2011 Pearson Education, Inc

Data generated by processes over time

Describe and predict output of processes

2011 Pearson Education, Inc

2011 Pearson Education, Inc

Measures change over time relative to a

Price Index measures changes in price

Quantity Index measures changes in

Steps for Calculating

Time series value at time t

Time series value at base period

Steps for Calculating

Simple Index Number Example

2011 Pearson Education, Inc

Simple Index Number Solution

1998 Index Number

Indicates price had dropped by 20.7% (100

Simple Index Number Solution

Indicates price had risen by 98% (100 198)

2011 Pearson Education, Inc

Simple Index Numbers

2011 Pearson Education, Inc

Simple Index Numbers

2011 Pearson Education, Inc

Composite Index Number

2011 Pearson Education, Inc

Composite Index Number

2011 Pearson Education, Inc

Simple Composite Index

2011 Pearson Education, Inc

Simple Composite Index

Now compute the

2011 Pearson Education, Inc

Simple Composite Index

2011 Pearson Education, Inc

Simple Composite Index

2011 Pearson Education, Inc

Weighted Composite Price

2011 Pearson Education, Inc

Example: Consumer Price Index (CPI)

2011 Pearson Education, Inc

Steps for Calculating a

Steps for Calculating a

2011 Pearson Education, Inc

Laspeyres Index Number

2011 Pearson Education, Inc

Laspeyres Index Solution

Pit0 100(45.51) 500(13.17) 200(36.81)

Weighted total for 12/29/2006:

Pit 100(61.41) 500(7.51) 200(30.72)

Laspeyres Index Solution

i ,1/ 31/ 05 i ,12 / 29 / 06

i ,1/ 31/ 05 i ,1/ 31/ 05

Compare current prices to base period prices at

Steps for Calculating a

2011 Pearson Education, Inc

Steps for Calculating a

Paasche Index Number Example

2011 Pearson Education, Inc