A.A relative change in a variable or group of variables
B.An absolute total of all variables
C.A future value of a variable
D.The exact cause of a change
Correct Answer: A relative change in a variable or group of variables
Explanation:
An index number measures the relative change in one variable or a group of related variables over time or place.
Incorrect! Try again.
2Which index is commonly used to measure changes in the cost of living?
Need for index numbers
Easy
A.Industrial Production Index
B.Wholesale Quantity Index
C.Consumer Price Index
D.Agricultural Output Index
Correct Answer: Consumer Price Index
Explanation:
The Consumer Price Index measures changes in the prices paid by consumers for a selected basket of goods and services.
Incorrect! Try again.
3In an index number series, the value assigned to the base year is usually:
Need for index numbers
Easy
A.
B.
C.
D.
Correct Answer:
Explanation:
The base-year index is conventionally set equal to so that other years can be compared with it easily.
Incorrect! Try again.
4If a price index rises from to , what does it indicate?
Need for index numbers
Easy
A.Prices decreased by
B.Prices remained unchanged
C.Prices increased by
D.Prices increased by
Correct Answer: Prices increased by
Explanation:
An increase from to represents a rise relative to the base year.
Incorrect! Try again.
5Which type of index number measures changes in the physical volume of goods?
Need for index numbers
Easy
A.Quantity index
B.Price index
C.Wage index
D.Value index
Correct Answer: Quantity index
Explanation:
A quantity index measures relative changes in the quantities or physical volume of goods.
Incorrect! Try again.
6Why are index numbers often called economic barometers?
Need for index numbers
Easy
A.They indicate general economic changes
B.They record daily weather changes
C.They eliminate all economic uncertainty
D.They calculate individual income exactly
Correct Answer: They indicate general economic changes
Explanation:
Index numbers summarize changes in economic variables such as prices, production, and trade, making them useful indicators of economic conditions.
Incorrect! Try again.
7Which formula represents the simple aggregative price index?
Different methods of constructing index numbers
Easy
A.
B.
C.
D.
Correct Answer:
Explanation:
The simple aggregative price index compares the sum of current-year prices with the sum of base-year prices.
Incorrect! Try again.
8A price relative for a commodity is calculated using which formula?
Different methods of constructing index numbers
Easy
A.
B.
C.
D.
Correct Answer:
Explanation:
A price relative expresses the current price as a percentage of the base price .
Incorrect! Try again.
9Which quantities are used as weights in the Laspeyres price index?
Different methods of constructing index numbers
Easy
A.Base-year quantities
B.Average-year quantities
C.Current-year quantities
D.Forecast-year quantities
Correct Answer: Base-year quantities
Explanation:
The Laspeyres price index uses base-year quantities, denoted by , as weights.
Incorrect! Try again.
10Which quantities are used as weights in the Paasche price index?
Different methods of constructing index numbers
Easy
A.Forecast-year quantities
B.Average-year quantities
C.Current-year quantities
D.Base-year quantities
Correct Answer: Current-year quantities
Explanation:
The Paasche price index uses current-year quantities, denoted by , as weights.
Incorrect! Try again.
11Fisher's ideal price index is the geometric mean of which two indices?
Different methods of constructing index numbers
Easy
A.Fixed-base and chain indices
B.Simple and value indices
C.Laspeyres and Paasche indices
D.Quantity and production indices
Correct Answer: Laspeyres and Paasche indices
Explanation:
Fisher's ideal index is calculated as , where and are the Laspeyres and Paasche indices.
Incorrect! Try again.
12What is the main feature of an unweighted index number?
Different methods of constructing index numbers
Easy
A.Current quantities determine importance
B.Only costly items are included
C.All items receive equal importance
D.Base quantities determine importance
Correct Answer: All items receive equal importance
Explanation:
An unweighted index does not assign separate weights, so each included item receives equal importance.
Incorrect! Try again.
13In a fixed-base index, each year's value is compared with:
Different methods of constructing index numbers
Easy
A.The immediately preceding year
B.The same selected base year
C.The immediately following year
D.The average of all years
Correct Answer: The same selected base year
Explanation:
A fixed-base index compares every period with one common base period.
Incorrect! Try again.
14In a chain-base index, each year's value is initially compared with:
Different methods of constructing index numbers
Easy
A.The final year in the series
B.The immediately preceding year
C.The first year in the series
D.The average year in the series
Correct Answer: The immediately preceding year
Explanation:
A chain-base index first compares each period with the preceding period and then links the resulting relatives.
Incorrect! Try again.
15Which formula represents the Laspeyres price index?
Different methods of constructing index numbers
Easy
A.
B.
C.
D.
Correct Answer:
Explanation:
The Laspeyres price index weights both base and current prices using base-year quantities .
Incorrect! Try again.
16Which formula represents the Paasche price index?
Different methods of constructing index numbers
Easy
A.
B.
C.
D.
Correct Answer:
Explanation:
The Paasche price index weights both base and current prices using current-year quantities .
Incorrect! Try again.
17Which test checks whether reversing the base and current periods gives the reciprocal index?
Tests for judging the soundness of an index number
Easy
A.Unit test
B.Time reversal test
C.Factor reversal test
D.Circular test
Correct Answer: Time reversal test
Explanation:
The time reversal test requires the forward and backward index ratios to satisfy .
Incorrect! Try again.
18Which test requires the product of the price index and quantity index to equal the value index?
Tests for judging the soundness of an index number
Easy
A.Time reversal test
B.Factor reversal test
C.Unit test
D.Circular test
Correct Answer: Factor reversal test
Explanation:
The factor reversal test requires when the indices are expressed as ratios.
Incorrect! Try again.
19Which index number satisfies both the time reversal test and the factor reversal test?
Tests for judging the soundness of an index number
Easy
A.Laspeyres price index
B.Fisher's ideal index
C.Simple aggregative index
D.Paasche price index
Correct Answer: Fisher's ideal index
Explanation:
Fisher's ideal index is considered sound because it satisfies both the time reversal and factor reversal tests.
Incorrect! Try again.
20What does the unit test require from an index number?
Tests for judging the soundness of an index number
Easy
A.It should always have a base value of one
B.It should be unaffected by changes in measurement units
C.It should compare only two prices
D.It should use only one commodity
Correct Answer: It should be unaffected by changes in measurement units
Explanation:
The unit test requires an index number to remain unchanged when measurement units, such as kilograms and grams, are changed.
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21A worker's salary rises by while the cost-of-living index rises from to . What happens to the worker's approximate real purchasing power?
Need for index numbers
Medium
A.It decreases by about
B.It decreases by exactly
C.It remains approximately unchanged
D.It increases by about
Correct Answer: It decreases by about
Explanation:
Real purchasing power changes by . The salary increase does not fully offset inflation.
Incorrect! Try again.
22A company's sales increase from lakh to lakh while its price index rises from to . What is the best conclusion about the volume of sales?
Need for index numbers
Medium
A.The sales volume remained unchanged
B.The sales volume increased by
C.The sales volume increased by
D.The sales volume decreased by
Correct Answer: The sales volume decreased by
Explanation:
Nominal sales rose by a factor of , but prices rose by . Thus, the volume factor is , indicating a decrease.
Incorrect! Try again.
23Why is an index number more useful than the price change of a single commodity when measuring inflation?
Need for index numbers
Medium
A.It records the exact price of every commodity in the economy
B.It removes all effects of changes in consumer preferences
C.It guarantees identical inflation rates for every household
D.It summarizes changes across a selected group of commodities
Correct Answer: It summarizes changes across a selected group of commodities
Explanation:
An index number combines changes in several representative commodities into one measure, providing a broader view than a single price change.
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24The consumer price index rises from to . By approximately what percentage should a fixed allowance increase to preserve its purchasing power?
Need for index numbers
Medium
A.
B.
C.
D.
Correct Answer:
Explanation:
The required increase is .
Incorrect! Try again.
25Prices of three goods change from in the base year to in the current year. What is the simple aggregative price index?
Different methods of constructing index numbers
Medium
A.
B.
C.
D.
Correct Answer:
Explanation:
The index is .
Incorrect! Try again.
26What is a major weakness of the simple aggregative price index?
Different methods of constructing index numbers
Medium
A.It cannot compare prices between any two time periods
B.It assigns explicit expenditure weights to all selected goods
C.It requires current-year quantities for every selected good
D.It is affected by the units in which goods are quoted
Correct Answer: It is affected by the units in which goods are quoted
Explanation:
Directly adding prices makes the result sensitive to whether goods are quoted per kilogram, gram, litre, or another unit.
Incorrect! Try again.
27The price relatives of three commodities are , , and . What is their simple arithmetic mean index?
Different methods of constructing index numbers
Medium
A.
B.
C.
D.
Correct Answer:
Explanation:
The arithmetic mean index is .
Incorrect! Try again.
28Two commodities have price relatives of and . What is the index obtained using the geometric mean of price relatives?
Different methods of constructing index numbers
Medium
A.
B.
C.
D.
Correct Answer:
Explanation:
The geometric mean is .
Incorrect! Try again.
29For two goods, , , and . What is the Laspeyres price index?
Different methods of constructing index numbers
Medium
A.
B.
C.
D.
Correct Answer:
Explanation:
Using base-year quantities, .
Incorrect! Try again.
30For two goods, , , and . What is the Paasche price index?
Different methods of constructing index numbers
Medium
A.
B.
C.
D.
Correct Answer:
Explanation:
Using current-year quantities, .
Incorrect! Try again.
31If the Laspeyres price index is and the Paasche price index is , what is Fisher's ideal price index?
Different methods of constructing index numbers
Medium
A.
B.
C.
D.
Correct Answer:
Explanation:
Fisher's index is the geometric mean: .
Incorrect! Try again.
32A consumer price index uses weights , , and for three groups whose price relatives are , , and . What is the weighted average index?
Different methods of constructing index numbers
Medium
A.
B.
C.
D.
Correct Answer:
Explanation:
The index is .
Incorrect! Try again.
33Why may the Laspeyres price index overstate the rise in the cost of living?
Different methods of constructing index numbers
Medium
A.It uses current quantities that reflect substitution toward cheaper goods
B.It ignores substitution away from goods that become relatively expensive
C.It measures quantity changes instead of changes in market prices
D.It gives equal importance to every commodity regardless of expenditure
Correct Answer: It ignores substitution away from goods that become relatively expensive
Explanation:
Laspeyres uses fixed base-period quantities, so it does not reflect consumers replacing relatively expensive goods with cheaper alternatives.
Incorrect! Try again.
34Which quantity weights are used in the Paasche price index?
Different methods of constructing index numbers
Medium
A.Current-period quantities
B.Fixed standard quantities
C.Base-period quantities
D.Average-period quantities
Correct Answer: Current-period quantities
Explanation:
The Paasche price index is , so it uses current-period quantities.
Incorrect! Try again.
35Which expression gives the quantity weights used by the Marshall–Edgeworth price index?
Different methods of constructing index numbers
Medium
A.
B.
C.
D.
Correct Answer:
Explanation:
The Marshall–Edgeworth method weights prices by the sum of base- and current-period quantities, .
Incorrect! Try again.
36An index with 2015 as base has values for 2018 and for 2022. If 2018 is made the new base, what is the revised index for 2022?
Different methods of constructing index numbers
Medium
A.
B.
C.
D.
Correct Answer:
Explanation:
The rebased index is .
Incorrect! Try again.
37An index gives and . What does the time-reversal test indicate?
Tests for judging the soundness of an index number
Medium
A.It passes because the product is
B.It fails because the sum is
C.It fails because the product is
D.It passes because the sum is
Correct Answer: It fails because the product is
Explanation:
The time-reversal test requires . Here, , so the test fails.
Incorrect! Try again.
38A price index is , while the corresponding value index is . If the factor-reversal test holds, what must the quantity index be?
Tests for judging the soundness of an index number
Medium
A.
B.
C.
D.
Correct Answer:
Explanation:
The factor-reversal test requires . Therefore, .
Incorrect! Try again.
39Which index-number formula generally satisfies both the time-reversal test and the factor-reversal test?
Tests for judging the soundness of an index number
Medium
A.Fisher's ideal index
B.Laspeyres' index
C.Paasche's index
D.Simple aggregative index
Correct Answer: Fisher's ideal index
Explanation:
Fisher's ideal index is designed as the geometric mean of Laspeyres and Paasche indices and satisfies both tests.
Incorrect! Try again.
40Which condition must hold for an index number to satisfy the circular test over periods , , and ?
Tests for judging the soundness of an index number
Medium
A.
B.
C.
D.
Correct Answer:
Explanation:
The circular test requires that moving through all periods and returning to the starting period produce no net change, so the product must equal .
Incorrect! Try again.
41A firm's nominal sales index rises from to , while a compatible Fisher price index rises from to . If the price and quantity indexes satisfy the factor-reversal test, what is the implied quantity index?
Need for index numbers
Hard
A.
B.
C.
D.
Correct Answer:
Explanation:
Factor reversal gives . Thus , indicating a fall in quantity.
Incorrect! Try again.
42A cost-of-living index remains at , although food prices rise sharply and communication prices fall sharply. Which conclusion is statistically justified?
Need for index numbers
Hard
A.The price movements exactly cancel for every individual consumer represented in the population
B.The weighted average cost is unchanged
C.Every household is equally unaffected
D.All component prices are unchanged
Correct Answer: The weighted average cost is unchanged
Explanation:
An index summarizes weighted price movements. An unchanged aggregate index does not imply unchanged component prices or identical effects across households.
Incorrect! Try again.
43Nominal output has an index of , and its compatible price deflator is . Assuming the indexes obey factor reversal, what is the approximate real-output index?
Need for index numbers
Hard
A.
B.
C.
D.
Correct Answer:
Explanation:
Real output is obtained by deflation: . Nominal growth therefore overstates real growth.
Incorrect! Try again.
44A statistical agency must measure inflation when product quality changes rapidly and obsolete products disappear. Which strategy best addresses the underlying index-number problem?
Need for index numbers
Hard
A.Use quality-adjusted prices and chain linking
B.Retain every obsolete product indefinitely
C.Treat each quality improvement as a pure increase in price regardless of the resulting change in consumer value
D.Compare only unweighted expenditure totals
Correct Answer: Use quality-adjusted prices and chain linking
Explanation:
Quality adjustment separates pure price change from product improvement, while chain linking permits the representative basket to evolve over time.
Incorrect! Try again.
45For two commodities, , , , and . What is Fisher's ideal price index?
Different methods of constructing index numbers
Hard
A.
B.
C.
D.
Correct Answer:
Explanation:
Laspeyres is , while Paasche is . Fisher is .
Incorrect! Try again.
46Two goods have price relatives and . Their shares in current-period expenditure are and , respectively. What is the Paasche price index?
Different methods of constructing index numbers
Hard
A.
B.
C.
D.
Correct Answer:
Explanation:
Using current expenditure shares, .
Incorrect! Try again.
47If the Laspeyres and Paasche price indexes are and , respectively, what is Fisher's ideal index?
Different methods of constructing index numbers
Hard
A.
B.
C.
D.
Correct Answer:
Explanation:
Fisher's index is the geometric mean: .
Incorrect! Try again.
48Two goods have prices changing from to . The simple aggregative price index is initially . If only the first good is re-quoted in cents rather than dollars in both periods, what does the same method produce?
Different methods of constructing index numbers
Hard
A.
B.
C.
D.It remains because changing a unit can never alter any aggregative index constructed from the same underlying prices
Correct Answer:
Explanation:
The re-quoted vectors are and , so the index is . This shows the method's unit dependence.
Incorrect! Try again.
49Which weighted average of price relatives is algebraically identical to the Laspeyres aggregative price index?
Different methods of constructing index numbers
Hard
A.Arithmetic mean weighted by base expenditures
B.Geometric mean weighted by base quantities
C.Harmonic mean weighted by current expenditures
D.Arithmetic mean weighted by current quantities
Correct Answer: Arithmetic mean weighted by base expenditures
Explanation:
Weighting by gives , the Laspeyres formula.
Incorrect! Try again.
50Given , , , and , calculate the Marshall–Edgeworth price index.
Different methods of constructing index numbers
Hard
A.
B.
C.
D.
Correct Answer:
Explanation:
Using weights , the index is .
Incorrect! Try again.
51For , , , and , what is the Walsh price index using weights ?
Different methods of constructing index numbers
Hard
A.
B.
C.
D.
Correct Answer:
Explanation:
Both quantity weights equal . Hence .
Incorrect! Try again.
52Successive annual link relatives are , , and . Taking the index before the first link as , what is the final chain-base index?
Different methods of constructing index numbers
Hard
A.
B.
C.
D.
Correct Answer:
Explanation:
The chain index is .
Incorrect! Try again.
53A direct fixed-base index gives , while link indexes give and . What is the chain index for period , and what does the difference indicate?
Different methods of constructing index numbers
Hard
A.; chain drift or nontransitivity
B.; substitution bias alone
C.; perfect circular consistency
D.; an arithmetic error must have occurred because chained and direct indexes are theoretically required to coincide
Correct Answer: ; chain drift or nontransitivity
Explanation:
Chaining gives . Its difference from the direct index of indicates failure of transitivity or chain drift.
Incorrect! Try again.
54An index on an old base equals in the current period. The old-base index for the proposed new base period is . What is the approximately rebased current index?
Different methods of constructing index numbers
Hard
A.
B.
C.
D.
Correct Answer:
Explanation:
Rebasing gives , assuming the usual proportional rebasing approximation is appropriate.
Incorrect! Try again.
55Four price relatives are , , , and . What is their unweighted geometric-mean price index?
Different methods of constructing index numbers
Hard
A.
B.
C.
D.
Correct Answer:
Explanation:
Their product is . Therefore the geometric mean is , giving an index of .
Incorrect! Try again.
56Current-period quantities are unavailable, but base-period quantities and both periods' prices are known. Which standard weighted aggregative price index remains directly computable?
Different methods of constructing index numbers
Hard
A.Laspeyres index
B.Fisher index
C.Paasche index, because its current-period quantity weights can always be inferred uniquely from the two observed price vectors
D.Paasche index
Correct Answer: Laspeyres index
Explanation:
Laspeyres uses , which is available. Paasche requires , and Fisher requires both Laspeyres and Paasche.
Incorrect! Try again.
57A price index from period to period is . If it satisfies the time-reversal test, what must the reverse index be when indexes are expressed with base ?
Tests for judging the soundness of an index number
Hard
A.
B.
C.
D.
Correct Answer:
Explanation:
The percentage-form time-reversal condition is . Thus .
Incorrect! Try again.
58A price index is , and the corresponding value index is . If the system satisfies the factor-reversal test, what must the quantity index be?
Tests for judging the soundness of an index number
Hard
A.
B.
C.
D.
Correct Answer:
Explanation:
In percentage form, . Therefore .
Incorrect! Try again.
59In ratio form, and . What value of is required by the circular test?
Tests for judging the soundness of an index number
Hard
A.
B.
C.
D.
Correct Answer:
Explanation:
The circular test requires . Hence .
Incorrect! Try again.
60Suppose and , where and denote Laspeyres and Paasche price-index ratios expressed as percentages. Which pair gives the Fisher indexes and ?
Tests for judging the soundness of an index number
Hard
A. and
B. and
C. and
D. and
Correct Answer: and
Explanation:
. Since Fisher satisfies time reversal, .
Incorrect! Try again.
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