Fisher's price index number is a method used to calculate the price level changes over time. It is regarded as the ideal index number because it takes into account both the quantity and price changes. Fisher's index is specifically defined as the geometric mean of the Laspeyre's and Paasche's index numbers. Let's explore each index:
Laspeyre's index uses base period quantities to compare price changes over time, whereas Paasche's index uses the current period quantities. The formula for Fisher's Price Index is:
Fisher's Price Index = √(Laspeyre's Index × Paasche's Index)
Each index captures different aspects of price and quantity changes, which when combined using the geometric mean, offers a more balanced approach to measuring price changes compared to individual indices.
This makes Fisher's index more reliable and widely accepted as it mitigates the potential biases of using only one base period, thus ensuring an accurate reflection of price changes.
Therefore, the correct answer is: G.M. of Laspeyre's and Paasche's index.