Unit II INDEX NUMBERS

{This UNIT has: 2-1Mark,2-2Marks,2-5Marks1-10Marks=26Mrks}

p
I (a) Simple/unweighted A.M. of price relatives: Po1= ; Where P = p1
x100
n P0

(b) Simple/unweighted G.M of price relatives: P01=A.L   log p 

 n 
 p1
(c) Simple/ unweighted Aggregative of prices: P01 = x100
 p0
 pw p
II (a) Weighted A.M. of price relatives: P01 = ; where P= 1 x100
w p0
W = weights/budget/expenditure/  p0 q0 
(b) Weighted GM of price relatives: Po1= A.L   w logp 
w  
(c) Weighted Aggregative of prices Index Numbers: Po1(L) =  p1q 0 x 100;
 p0 q 0
 q1p0  p1 q1 q p  p1 q1
Q01(L) = x100 ; P01(P)= x100; Q01(P)= 1 1
x100; V01 x100
 q 0 p0  0 1
p q  q p  p0 q 0 ..Jun-19
0 1
 p 1 q 0 +  p1 q 1  q 1 p 0 +  q 1 p1
P01(ME)= x 100, Q01(ME)= x100 ....Mar16
 p 0 q 0 + p 0 q 1  q 0 p 0 +  q 0 p1
LP
P01(F)= p 1q0 x p 1 q1 x 100;
pq pq
F= L x P & D-B= …are the relation between
 0 0  0 1 2
Laspeyre‟s, Paasche‟s and Fisher‟s also Dorbish-Bowley‟s. OR
1   p1 q 0  p1 q 1   p1q
P01(D-B)=  +  x100; P01(K)= x100 …July18,Mar20
2   p 0 q 0  p 0 q1   p0 q

CPI/CLI NO.: A.E.M-C.P.I= 

p1q 0 pw
x100; F.B.M- C.P.I=
p q0 0 w
1. What do you mean by an index number?/Define I.No. …..Mar16
* An index number is a statistical measure designed to show an average change in a
variable or group of related variables with respect to Time, Geographical location or
Income group etc.
2. Why Index numbers are called „Economic Barometers‟?
*A Barometer measures the pressure of the atmosphere, An I.No. indicates the changes
occurring in Economic field such as Variations in price, costs, growth rate, imports,
exports of certain commodities etc.,
3. Mention any two characteristics of Index number. ...June17
* (i) I.Nos.are specialized averages, (ii) I.No‟s expressed in ratios but for comparison
they are expressed in percentages. OR (iii) They facilitate comparison.
4. Why I.Nos. are called specialized average?
- Because I.Nos. which indicate the averages change in group of related variables which
are measured in different units.
5. Define price index number.
*P.I.No.which indicate the general level of prices of commodities in the current year as
compared to base year denoted by P01
6. What is the Quantity Index Number?
*Q.I.No. is the I.No. of quantity of goods manufactured such as agricultural products
produced, consumed, imported or exported over a period. Which indicate the physical
output in economy. Denoted by Q01

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7. Define value Index number
* Value index number indicates the effect of combination of price and quantity changes
(transaction) in between two time periods.Denoted by V01;
P01 x Q01=  p1q1 =V01;Except 100
 p0 q 0
8. What is a price relative?
* Price Relative is the price in the current year expressed as percentage of the price in
the base year.ie,P= P1 x100 . Similarly
P0
Quantity relative: Q= q1 x100 ; Value Relative:V= v1 x100
q0 v0
9. Write the uses of Index numbers.
* Index numbers are useful to:- (i) Governments in formulating Economic policies,
such as Taxation, imports, exports etc.,
(ii) Grant of licenses to new firms (iii) Fixation of Bank rates
(vi) Salary and grants to employees. (v) Comparing variations in production, prices,
shares, Demand, supply and (vi) In measurement of real rupee value.
10. Give any two Limitations of Index Numbers. ...Mar-16,18
* (i) Many formulae are used and they give different answers.
(ii) As the customs and habits change from time to time, the uses of commodities also
vary. (iii) There is ample scope for bias in the construction of I.No.
11. Mention the steps in the construction of Index Number.
* (1) Purpose and the scope (2) Selection of base period/year
(3) Selection of commodities or items (4) Obtaining price Quotation
(5) Choice of an average (6) Selection of weights (7) Selection of suitable formula
12. Theoretically which best average is used in the construction of I.N.? ….Jly16
Ans: Geometric mean
13. What is meant by Base year and Current year?
* The year selected for comparison is called Base year and the year for which
comparisons are required is called Current year.
14. What is a Normal base year? …..Jly-14
*Normal base year is the year in which, in that year there should not be any accidental
activities, which would affects the Economic / Business activities.
15. What are the norms in selection of Base Year …J16,M19,20
* It (i) should be the Normal one ie., Economically stable
(ii) Should not be too long or too short period
(iii) Is a fixed or chain base year method. …Mar2020
16. What are fixed and chain base in Index numbers? …Jly17
* If the period of comparison is fixed for any current year is fixed base year and
if the period of comparison is immediate preceding year for any current year is chain
base year.
17. What are Quantity and Value weights used in I.Nos.?
* A quantity weight is the amount of item used or produced and Value weight is the
product of price and quantity used in the year
18. Which averages are commonly used in the construction of I.No.
* Simple A.M, Weighted A.M and weighted G.Ms are used.
19. Why INo.based on AM would be higher than INo.based on GM?
*AM gives greater weightage to bigger items, So Index no. based on AM would be higher
than GM.
20. What are the weights used in Laspeyre‟s, Paasche‟s, Marshall-
Edgeworths‟s Price Index Numbers? …Jly16,M-18

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 * Base year, Current year & Arithmetic mean of Base year and Current year Quantities
are used as weights.
21. Which weights are used in Paasche‟s Quantity Index No.? …Mar19
* Current year prices (P1).
22. Define Unit Test …June19
-This test requires that the index number used should be independent of the units of
measurement. This test doesn‟t satisfy by Simple Aggregative of prices P.I.N
23. Which index number doesn‟t satisfy Unit test?
* Simple aggregative price index number does not satisfy.
24. Define/what are the conditions for an Index number to satisfy TRT and FRT....Mar19
*Time Reversal Test requires that the product of P01 (PIN computed time backward)
andP10 (PIN computed time forward) should be equal to one (1) ie.P01xP10=1.Except 100.
Here T.R.T satisfied by Marshall-Edgeworth‟s, Fisher‟s and Kelly‟s.
* Factor Reversal Test requires that the product of P01 (P.I.No) and Q01 (Q.I.No.) should be
equal to the net changes occurring in between the current year and the base year (V01)
 p1q1
ie. P01 x Q01 =V01 OR = ; (Except the factor 100) F.R.T satisfied only by Fisher‟
 p0 q 0
25. Define Circular test
* This test requires that the I.No is to work in a circular manner to find the I.No. from
period to period without referring back to the original base each time. Suppose I.Nos.
for 3 years 0(2000), 1(2005) and 2 (2010) then:-
Circular test is: P01 x P12 x P20 =1 Except 100.
{Where, P01 denotes the price index for the current period „1‟ (2005) with respect to
base period 0(1998). Similarly, P12 (price I.No.for the year 2010 to base 2005) and P20
(P.I.No.for the year1998 to base 2010).This test satisfy only by Simple GM and Kelly‟s
P.I.N}
26. Which Index number satisfies circular test? …..Mar15
* This test is satisfied by simple geometric mean of the price relatives and the Kelly‟s
methods.
27. Why Fisher‟s I.No.is called an Ideal I.No. ….Mar17,July18
* Fisher‟s Index Number is called as ideal because:-
(i) It is based on GM which is considered as best average.
(ii) It satisfies both time reversal test and factor reversal tests
(iii) It is free from bias in use of weights ie., it takes both current and base year
quantities as Weights.
28. Which I.No. which satisfies both TRT and FRT? * Fishers …..Mar20
29. Which test is satisfied by Marshall-Edgeworth‟s I.No.? ….. Mar17
* Time Reversal Test/Yes.
30. Which I.No. shows upward bias and downward bias? Why? ….Mar15
* Laspeyre‟s index number shows upward bias, which uses base year quantity(q0) gives
relatively more weightage to the commodities.
* Paasche‟s index number shows downward bias, which uses current year quantity (q1)
which gives relatively less weightage to the commodities.
31. Define consumer price/cost of living index number.
* “Cost of living index number is the index number of the cost met by a specified class
of consumers in buying a basket of goods and services”
32. Mention the steps involved in the construction of consumer price /Cost of living index
number. ----Mar16
* (i) Object and the scope (ii) conducting family budget enquiry/survey
(iii) Obtaining the price quotation (iv) Methods of construction

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33. Name the 2 methods of computing Consumer price Index (cost of living Index)
Number? ---Mar15, Jun19
*Aggregative expenditure method & Family Budget method.
34. What do you mean by „Family Budget Survey‟ conducted while constructing
consumer price index number?
* A detailed enquiry/survey regarding the consumption pattern and the average
expenditure spent on various item under the heads-Food, Cloth, Rent, Fuel & Lighting,
Education, Entertainment& Miscellaneous, required for day to day living of the
consumers is conducted.
35. Mention two uses of consumer price index number.
* C.P.I is used in (i) fixation of salary and grant of DA to employees,
(ii) Measurement of real rupee value.
36. Which average is preferred in the construction of an index number? Why?
* A.M or GM. is used, because AM is very easy to calculate, whereas geometric mean is
considered as most appropriate and better method for averaging the ratios.
37. If cost of living Index number of 2005 is 225 with 1995 as a base year, what is the
change in the Index?
*The percentage change in consumer prices is 125%
38. The average price level of a commodity in the year 2000 is 2 12 Times of what it was in
1990.Express the change by means of Index number. …Mar-13
* The average price in 1990 is 100, so the Index number should be 100 x 2 2 =250
1

in 2000
39. The price index number for the current year is 132. Give your conclusion. ----Jly18
* There is net increase of the prices by 32% in the current year as compared to base
year.
40. Which prices of the commodities is useful (used) in the construction of C.L.I. No./
C.P.I.No. …Mar17
* Retail prices of the commodities is used in the construction of consumer price Index
Number
41. What is the Index number during the base year? …Mar-15/18
Ans:100
42. The price index for the current year is 121.Give your conclusion. …Mar10
Ans: The prices have increased by 21%
43. If the general price level goes up by 80% between 2000 and 2012. Then what is the
index number for 2012 with base 2000? ...Mar15
* The index number for 2012 with base 2000 is 180.
44. If the price index number for the current year is 90, what is your conclusion?
* Prices have reduced by 10% in the CY as compared to BY.
45. Which Price index number for the current is 200, give your conclusion. .…Jly-12
* There is a net increase of prices by 100% in the current year as compared to base
year
46. If the number of units produced in the current is 120 then find the number of units
produced in the base year, if the Quantity index number (Qty. relative) is 250. …Mar15
q 120
x100 ;  q0=48
120
Q= 1 100 ; 250= x100 ; q0=
q0 q0 250
47. If a price of a commodity is Rs.10 in 2002 and Rs.35 in 2008, then compute the index
number of price.
* Price Index No. [Price relative] P = P1  100  35 x100 =350
P0 10
48. Show that Laspeyre‟s PIN does not satisfy time reversal test …Jly-06
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 * T.R.T: P01 xP10 =1(Except 100),
Here P01
L
=
 p1q0 and PL   p0 q1 Consider LHS: P01x P10=  p1q0
x
 p0q1
≠1, So Laspeyre‟s
p q 10
0 0 p q
1 1  p0q0  p1q1

P.I.N. does not satisfies TRT

49. The sum of the price relatives of 5 different is 220. Find suitable Unweighted price
index number. ....Mar14
-Here Unweighted price Index number: P01= = 40
50. What is the relationship between Laspeyre‟s, Paasche‟s and Dorbish-Bowley‟s,
Fisher‟s price index number.
L+ P
* AM of Laspeyre‟s and Paasche‟s Index numbers.ie, D-B=
2
* GM of Laspeyre‟s and Paasche‟s Index no. ie., F= L x P
51. If P01
L
=135 and P01P =138, find P01 [F] …Mar-13
* P01 [F]= P01 L  ×P01 P = 135×138 =136.49
52. If Laspeyre‟s and Fisher‟s indices are 110 and 110.5 respectively, find Paasche‟s PIN
* P01 [F] = P01  L×P01  P ; 110.5 = 110×P01  P  ; squaring on both sides: …Mar-12
(110.5)2=110 x P01(P); P01(P)=12210.25/110=111.0023
53. If P01
L
=105 and P01
P
=125 then find P01
(DB)
---Mar16
* The relation between Laspeyre‟s, Paasche‟s and Dorbish-Bowley‟s PIN.is:
L+ P 137.1+139.3
D-B= = =138.2; (same in Jun19)
2 2
54. Given ∑p1q0=100 and ∑ p0q0=102 find a suitable index no.
L  p1q0 100
* P01 = X100=  100 =98.04
 p0q0 102
55. If ∑p1q1=250 and ∑ p0q1=120 find a suitable index number.
 p1q1 250
* P01
P
= x100 =  100 =208.3
 p0q1 120
56. If P01
L
for the year 2006 with base year 2000 is 225, what is the index number for
2000? …Jly-10
* The index number for the year 2000 is „100‟
57. If ∑p1q=600 and ∑p0q=500, compute suitable price index no.
 1 x100 = pq 600
* Kelly‟s P.I.N: P01=  p q x100=120 ...Mar17/19
0 500
58. ∑p0 q1=1125 and ∑ p0q0=1250 then find suitable Q.I.No. …June17
q p 1125
* Q01= 1 0 x100 = x100 = 90
q p 0 0
1250
59. Find V01/Value I.No., given (i)∑p0q0=382 and ∑p1q1=424 and (ii) ∑p0q0=300 and
∑p1q1=375. ….Mar11/18
p q 424 375
(i) V01=
1 1
x100 = x100=110.9 (ii) V =
300 x100 =125
p q 0 0
382 01

60. If ∑p0q0=250, ∑p1q1=310,∑p1q0=210 and ∑ p0q1= 250,find P01(DB). …..Jly16

 p q  1  210 310 
D-B 1  p q
* P01 = 2  1 0  1 1  x100 =   x100 =104
p q p q
 0 0  0 1 
2  250 250 

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61. Calculate cost of living index number from the following data.
Items Food Education Rent Fuel Clothing
Group Index 110 120 112 108 105
Weights 3 8 4 6 9

 pw {(110 x 3)+(120 x 8)+(112 x 4)+(108 x 6)+(105 x 9)}

* CPI= = =110.03
w (3+8+4+6+9)
62. Calculate „P01‟ by simple average of price relative method,using Arithmetic Mean.
…Jly-11 Item A B C D
Price in base year 24 18 30 15
Price in current year 27 17 30 18

*Here P= P1 x100 ,For item A: 27 x100 =112.5 similarly calculate others;

P0 24
 P 426.94
P=[112.5,94.44,100,120];∑P=426.94;P01= = =106.7
n 4
63. Calculate „Simple Aggregative PINO. …Mar20
Item A B C D
Base year 25 13 15 17
Price
Current year 30 15 17 28
P1
*Ans: ∑P0=(25+13..)70 & ∑P1=(30+15..)90; P01= x100= =128.75
***Cms***

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