Index Numbers

Why are index numbers considered important in economics?

1. They eliminate all economic problems.
2. They help measure changes in prices, production, income, and other economic variables over time.
3. They replace national income accounting.
4. They are useful only for academic purposes.

Which statement correctly distinguishes a price index from a quantity index?

1. Price index measures quantities; quantity index measures prices.
2. Price index measures changes in prices; quantity index measures changes in physical quantities.
3. Both measure exactly the same thing.
4. Neither is used in economics.

Which of the following is commonly used to study inflation in India?

1. Literacy Index
2. Consumer Price Index
3. Population Density Index
4. Employment Ratio

If the base year index is 100 and the current year index is 80, what does it indicate?

1. A 20% increase
2. A 20% decrease
3. An 80% increase
4. No change

Why are weights used in index numbers?

1. To simplify calculations only
2. To give equal importance to all commodities
3. To reflect the relative importance of different commodities
4. To reduce the number of observations

Which index number measures changes in the total value of a commodity?

1. Price Index
2. Quantity Index
3. Value Index
4. Cost Index

Which of the following is a limitation of index numbers?

1. They provide a general measure only.
2. They are based on selected items.
3. They may be affected by the choice of base year.
4. All of the above

What is the main purpose of the Consumer Price Index (CPI)?

1. To measure industrial production
2. To measure changes in the cost of living
3. To measure export performance
4. To measure agricultural output

Which of the following is an example of a quantity index?

1. Consumer Price Index
2. Wholesale Price Index
3. Index of Industrial Production
4. Cost of Living Index

Which index number assigns weights according to the importance of commodities?

1. Simple Index
2. Unweighted Index
3. Weighted Index
4. Chronological Index

Which formula is used for a simple aggregative price index?

1. ΣP₁ / ΣP₀ × 100
2. ΣQ₁ / ΣQ₀ × 100
3. ΣP₀ / ΣP₁ × 100
4. ΣP₁Q₁ / ΣP₀Q₀ × 100

If the index number for a year is 150, what does it indicate?

1. A 50% decrease from the base year
2. A 150% decrease from the base year
3. A 50% increase over the base year
4. No change from the base year

Which of the following is used to measure changes in the general price level?

1. Production Index
2. Price Index
3. Quantity Index
4. Value Index

Which year is chosen as the reference point in the construction of an index number?

1. Current year
2. Future year
3. Base year
4. Fiscal year

What is an index number?

1. A number showing the exact value of a commodity
2. A statistical measure that shows relative change in a variable over time
3. A table of frequencies
4. A measure of dispersion