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Introduction to Index Number Test - 9

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Introduction to Index Number Test - 9
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  • Question 1
    1 / -0
    For consumer price index, price quotations are collected from:
    Solution
    $$\Rightarrow$$  For consumer price index, price quatations are collected from: $$Retailers.$$
    $$\Rightarrow$$   A retailer is a company that buys products from a manufacturer or wholesaler and sells them to end users or customers. In a sense, a retailer is an intermediary or middleman that customers use to get products from the manufacturers.
    $$\Rightarrow$$  Retailers are experts in marketing, sales, merchandise inventory, and knowing their customers. They purchase the goods from the manufacturers at cost and market them to consumers at retail prices. 
    $$\Rightarrow$$  The retail price can be anywhere from 10 percent to 50 percent higher than the manufacturer cost. 
  • Question 2
    1 / -0
    Price relatives computed by chain base method are called: 
    Solution
    $$\Rightarrow$$  Price relatives computed by chain base method are called $$Link\,\,relatives.$$
    $$\Rightarrow$$  Under this method, the base year’s price does not remain fixed but moves step from year to year. In other words, the immediately preceding year’s price becomes the base year’s price for each of the succeeding years.
    $$\Rightarrow$$  Under this method, the base year’s price does not remain fixed but moves step from year to year. In other words, the immediately preceding year’s price becomes the base year’s price for each of the succeeding years.

    $$\Rightarrow$$  $$Chain\, index$$ = $$\dfrac{Average\, link\, relative\, of\, current\, year \times Chain\, index\, of\, previous\, year}{100}$$
  • Question 3
    1 / -0
    In fixed base method, the base period should be: 
    Solution
    $$\Rightarrow$$  In fixed base method, the base period should be : $$Normal$$.
    $$\Rightarrow$$ The year which is selected as a base should be a normal year, or in other words, the price level in this year should neither be abnormally low nor abnormally high. If an abnormal year is chosen as the base, the price relatives of the current year calculated on its basis would give misleading conclusions. 
    $$\Rightarrow$$  For example, a year in which war was at its peak, say the year 1965, is chosen as a base year; thus the comparison of the price level of the subsequent years to the price of 1965 is bound to give misleading conclusions as the price level in 1965 was abnormally high.
    $$\Rightarrow$$  In order to remove the difficulty associated with the selection of a normal year, the average price of a few years is sometimes taken as the base price. The fixed base method is used by the government in the calculation of national index numbers.
  • Question 4
    1 / -0
    When the prices of rice are to be compared, we compute: 
    Solution
    $$\Rightarrow$$  When the prices of rice are to be compared, we compute: $$Price\,Index.$$
    $$\Rightarrow$$  Price index, measure of relative price changes, consisting of a series of numbers arranged so that a comparison between the values for any two periods or places will show the average change in prices between periods or the average difference in prices between places. 
    $$\Rightarrow$$  In most countries price indexes are used to measure inflation, each focusing on the prices of a collection of goods and services important to a particular segment of the economy.
  • Question 5
    1 / -0
    The Human Development Report ranks countries on the basis of ______.
    Solution

    The Human Development Index (HDI) is a composite statistic of life expectancy, education, and income per capita indicators. 

  • Question 6
    1 / -0
    Index for base period is always taken as: 
    Solution
    $$\Rightarrow$$  Index for base period is always taken as : $$100$$.
    $$\Rightarrow$$  A base year is the first of a series of years in an economic or financial index. It is typically set to an arbitrary level of 100. 
    $$\Rightarrow$$  New, up-to-date base years are periodically introduced to keep data current in a particular index. 
    $$\Rightarrow$$  Any year can serve as a base year, but analysts typically choose recent years.
  • Question 7
    1 / -0
    Indices calculated by the chain base method are free from:
    Solution
    Indices calculated by chain base method are free from seasonal variations.
  • Question 8
    1 / -0
    The chain base indices are not suitable for:
    Solution
    $$\Rightarrow$$  The chain base indices are not suitable for : $$Long\,range\,comparisons.$$
    $$\Rightarrow$$  In chain base method method, there is no fixed base period.
    $$\Rightarrow$$  The chief advantage of this method is that the price relatives of a year can be compared with the price levels of the immediately preceding year. Businesses mostly interested in comparing this time period rather than comparing rates related to the distant past will utilize this method.
    $$\Rightarrow$$  Another advantage of the chain base method is that it is possible to include new items in an index number or to delete old times which are no longer important. But the chain base method has the drawback that comparisons cannot be made over a long period.
  • Question 9
    1 / -0
    In chain base method, the base period is:
    Solution
    $$\Rightarrow$$  In chain base method, the base period is : $$Not\,fixed.$$
    $$\Rightarrow$$  In this method, there is no fixed base period; the year immediately preceding the one for which the price index has to be calculated is assumed as the base year. 
    $$\Rightarrow$$  Thus, for the year 1994 the base year would be 1993, for 1993 it would be 1992, for 1992 it would be 1991, and so on. In this way there is no fixed base and it keeps on changing.
    $$\Rightarrow$$  advantage of the chain base method is that it is possible to include new items in an index number or to delete old times which are no longer important. 
  • Question 10
    1 / -0
    If all the values are of equal importance, the index numbers are called: 
    Solution
    $$\Rightarrow$$  If all the values are of equal importance, the index numbers are called: $$Unweighted$$.
    $$\Rightarrow$$  There are two methods of constructing unweighted index numbers: $$(1)$$ Simple Aggregative Method $$(2)$$ Simple Average of Relative method.
    $$\Rightarrow$$  Simple Aggregative Method - In this method, the total price of commodities in a given (current) year is divided by the total price of commodities in a base year and expressed as percentage.
    $$\Rightarrow$$  Simple Average of Relative method - In this method, we compute price relatives or link relatives of the given commodities and then use one of the averages such as the arithmetic mean, geometric mean, median, etc.
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