Consider the following two price index series:

Question

Year 1995 = 100
2002 80
2003 86
2004 90
2005 94


Year 2000 = 100
2005 115
2006 121
2007 130
2008 133


Splice the two index series to form one continuous series with 1995 as the base year. The index for 2006 is:



95.65


94


98.90


102.28

Answer 1

To splice the two index series, we need to first adjust the second series (2000 = 100) to have the base year of 1995 = 100.

For the second series, the index value for 2005 is 115. To adjust this to 1995 = 100, we divide 115 by 1.15 to get the equivalent value: 100.

So the adjusted second series is as follows:
Year 2000 = 100
2005 = 100
2006 = 105.22
2007 = 113.04
2008 = 115.65

Now we have a continuous series with 1995 = 100 as the base year:
1995 = 100
2002 = 80
2003 = 86
2004 = 90
2005 = 100
2006 = 105.22
2007 = 113.04
2008 = 115.65

The index for 2006 is 105.22.

So the closest option is:
98.90