Final answer:
A Laspeyres price index is based on the basket of goods from the base period, not the later period, which makes the statement false. It measures how the cost of this fixed basket increases over time using current prices.
Step-by-step explanation:
The statement that a Laspeyres price index is based on the basket consumed in the later period is False. In fact, the Laspeyres price index uses a fixed basket of goods based on the quantities consumed in the base period, and then compares how the cost of buying that basket of goods would increase over time using current period prices. This approach can lead to what is known as substitution bias, as it does not account for changes in consumption patterns due to price changes over time. Consumers might substitute away from goods that have become relatively more expensive, which is not reflected in a fixed basket approach.
Indexes such as the Consumer Price Index (CPI) and the GDP deflator also measure inflation, but with different methodologies. The CPI also uses a fixed basket, but it is regularly updated to reflect changing consumption patterns. The GDP deflator, conversely, does not use a fixed basket; it measures the price of all goods and services produced domestically, adjusting for changes in the mix of goods and the emergence of new goods or improvements in quality.