You Using a Laspeyres (Fixed-Weight) Price Index to Compare Price

Multiple Choice

You using a Laspeyres (fixed-weight) price index to compare price changes over time, and the index is based on consumption bundles from 2005 when energy costs were lower and housing costs were higher. Your results are likely to:

A) overstate changes in the cost of living because the weight assigned to energy is too small.
B) overstate changes in the cost of living because the weight assigned to energy is too large.
C) understate changes in the cost of living because the weight assigned to housing is too small.
D) understate changes in the cost of living because the weigh assigned to housing is too large.