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<p align="justify">If the quantities of current time period are taken as weights, the weighted aggregative index is called Passche’s Price Index. Since Passche’s Price Index is calculated by taking current year quantities as base therfore it is also called current year quantity weight method.&#160; Mostly, the index indicates&#160; downward trend and inclines to be lower than it should be. The formula for calculating Passche’s Price Index is given as:</p>
<p align="justify">&#160;</p>
<p align="justify"><a href="http://mba-lectures.com/wp-content/uploads/2010/06/image157.png"><img title="image" style="border-top-width: 0px; display: inline; border-left-width: 0px; border-bottom-width: 0px; border-right-width: 0px" height="49" alt="image" src="http://mba-lectures.com/wp-content/uploads/2010/06/image_thumb157.png" width="137" border="0" /></a> </p>
<p align="justify">&#160;</p>
<p align="justify">Problem: Calculate price index using Paasche formula </p>
<ul>
<li>
<div align="justify">Take 1986 as base year </div>
</li>
<li>
<div align="justify">Chain base method </div>
</li>
</ul>
<p align="justify">&#160;</p>
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<p> <a href="http://mba-lectures.com/wp-content/uploads/2010/06/image158.png"><img title="image" style="border-top-width: 0px; display: inline; border-left-width: 0px; border-bottom-width: 0px; border-right-width: 0px" height="171" src="http://mba-lectures.com/wp-content/uploads/2010/06/image_thumb158.png" width="500" border="0" /></a> </p>
<p align="justify">&#160;</p>
<p align="justify"><strong>Solution:</strong> </p>
<p align="justify">&#160;</p>
<p> <a href="http://mba-lectures.com/wp-content/uploads/2010/06/image159.png"><img title="image" style="border-top-width: 0px; display: inline; border-left-width: 0px; border-bottom-width: 0px; border-right-width: 0px" height="162" alt="image" src="http://mba-lectures.com/wp-content/uploads/2010/06/image_thumb159.png" width="500" border="0" /></a> </p>
<p align="justify">&#160;</p>
<h3 align="justify">Fixed Base Method</h3>
<p align="justify">&#160;</p>
<p> <a href="http://mba-lectures.com/wp-content/uploads/2010/06/image160.png"><img title="image" style="border-top-width: 0px; display: inline; border-left-width: 0px; border-bottom-width: 0px; border-right-width: 0px" height="281" alt="image" src="http://mba-lectures.com/wp-content/uploads/2010/06/image_thumb160.png" width="500" border="0" /></a> 
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please help me with this..
suppose a country has a money demand function (M/P)=KY, where k is a constant parameter. The money supply grows by 12% per year, and the real income grows by 4% per year.
a. what is the average inflation rate?
b. how would inflation be different if real income growth were higher? explain.