Q.1 What is an index number primarily used for?
To measure change in a variable over time
To calculate profits of a company
To find the average of numbers
To determine the median of a dataset
Explanation - Index numbers are used to compare changes in variables like prices or quantities over time or between different locations.
Correct answer is: To measure change in a variable over time
Q.2 Which of the following is a type of index number?
Price index
Profit index
Discount index
Demand index
Explanation - Price index measures the relative change in prices over time for a specified set of goods and services.
Correct answer is: Price index
Q.3 In the Laspeyres price index formula, what is used as weights?
Current period quantities
Base period quantities
Average of base and current quantities
None of the above
Explanation - The Laspeyres price index uses base period quantities as weights to measure price changes over time.
Correct answer is: Base period quantities
Q.4 The Paasche price index uses which type of quantities as weights?
Base period quantities
Current period quantities
Average quantities
Future period quantities
Explanation - Paasche index measures price change using current period quantities as weights, unlike Laspeyres which uses base period quantities.
Correct answer is: Current period quantities
Q.5 Which index number is generally higher, Laspeyres or Paasche, when prices rise?
Laspeyres
Paasche
Both are equal
Cannot be determined
Explanation - The Laspeyres index tends to overstate inflation compared to Paasche when prices rise because it uses fixed base period quantities.
Correct answer is: Laspeyres
Q.6 The Fisher Ideal Index is:
Geometric mean of Laspeyres and Paasche indices
Arithmetic mean of Laspeyres and Paasche indices
Difference between Laspeyres and Paasche indices
None of the above
Explanation - Fisher Ideal Index combines both Laspeyres and Paasche indices using the geometric mean for a more accurate measure of price changes.
Correct answer is: Geometric mean of Laspeyres and Paasche indices
Q.7 If the index number of a commodity is 120, it means:
Price has increased by 20%
Price has decreased by 20%
Price is 120 times the base
Price has increased by 120%
Explanation - An index of 120 means prices are 20% higher than the base period (100).
Correct answer is: Price has increased by 20%
Q.8 Which method is commonly used to construct a consumer price index?
Weighted arithmetic mean method
Median method
Geometric progression method
Harmonic mean method
Explanation - Consumer Price Index (CPI) typically uses weighted arithmetic mean where each item is given a weight based on its importance in consumption.
Correct answer is: Weighted arithmetic mean method
Q.9 Wholesale Price Index (WPI) differs from CPI mainly in:
Coverage of goods
Calculation method
Time period
Currency used
Explanation - WPI measures price changes at the wholesale level covering goods traded in bulk, whereas CPI measures retail price changes faced by consumers.
Correct answer is: Coverage of goods
Q.10 Which of the following statements is true about index numbers?
They can measure both price and quantity changes
They only measure prices
They only measure quantities
They are not useful in economics
Explanation - Index numbers can represent changes in prices, quantities, or even values over time.
Correct answer is: They can measure both price and quantity changes
Q.11 The base year for an index number is assigned a value of:
50
100
0
200
Explanation - By convention, the index of the base year is set to 100 to simplify interpretation of changes in subsequent years.
Correct answer is: 100
Q.12 An index number that uses current period quantities as weights is called:
Laspeyres index
Paasche index
Fisher index
Marshall-Edgeworth index
Explanation - Paasche index uses current period quantities for weighting prices, making it responsive to consumption changes.
Correct answer is: Paasche index
Q.13 Which index number formula is suitable for long-term comparisons?
Laspeyres index
Paasche index
Fisher index
All of the above
Explanation - Laspeyres index is preferred for long-term price comparisons because base period quantities remain fixed.
Correct answer is: Laspeyres index
Q.14 The chain base method of index numbers is used to:
Update base year periodically
Calculate the geometric mean
Ignore weights of commodities
Measure only quantities
Explanation - Chain base method links successive indices to account for changing consumption patterns and updates the base year regularly.
Correct answer is: Update base year periodically
Q.15 Which index number is considered ideal for accuracy?
Laspeyres
Paasche
Fisher
None
Explanation - Fisher Ideal Index, being the geometric mean of Laspeyres and Paasche indices, balances their respective biases and is considered most accurate.
Correct answer is: Fisher
Q.16 An index number of 95 indicates:
Prices have risen by 5%
Prices have fallen by 5%
Prices are 95 times the base
Prices are unchanged
Explanation - Index number less than 100 indicates a decrease in price relative to the base period.
Correct answer is: Prices have fallen by 5%
Q.17 A simple index number uses:
Single item prices or quantities
Multiple item prices and quantities
Weighted averages
Geometric mean
Explanation - Simple index measures change for a single item, unlike a weighted or composite index which involves multiple items.
Correct answer is: Single item prices or quantities
Q.18 A weighted index number:
Assigns importance to each item
Treats all items equally
Ignores price changes
Is always less than 100
Explanation - Weighted index accounts for the relative importance of items in the overall measure, often based on consumption or expenditure.
Correct answer is: Assigns importance to each item
Q.19 Which method of index number is less affected by extreme values?
Arithmetic mean method
Geometric mean method
Simple index method
None of the above
Explanation - Geometric mean reduces the influence of extreme values in price or quantity changes, providing a more balanced index.
Correct answer is: Geometric mean method
Q.20 Marshall-Edgeworth index uses which quantities as weights?
Base period quantities
Current period quantities
Average of base and current quantities
None
Explanation - Marshall-Edgeworth index uses the arithmetic mean of base and current period quantities as weights to reduce bias.
Correct answer is: Average of base and current quantities
Q.21 Index numbers are extensively used in:
Economic analysis
Sports statistics
Geography studies
Biology experiments
Explanation - Index numbers are widely used in economics to measure inflation, cost of living, and other financial indicators.
Correct answer is: Economic analysis
Q.22 Which of these is NOT an index number type?
Value index
Price index
Quantity index
Profit index
Explanation - Profit index is not a standard statistical index; common types include price, quantity, and value indices.
Correct answer is: Profit index
Q.23 A value index combines changes in:
Prices and quantities
Prices only
Quantities only
Weights only
Explanation - Value index measures change in the total value, accounting for both price and quantity changes of goods.
Correct answer is: Prices and quantities
Q.24 Consumer Price Index (CPI) is primarily used to measure:
Inflation
Exports
Population growth
Profit margins
Explanation - CPI tracks changes in the cost of living by measuring retail price changes of a basket of consumer goods and services.
Correct answer is: Inflation