CA Foundation Exam June 2023 » CA MCQs » Index Numbers

Index Numbers

MCQs on "index numbers": Find the multiple choice questions on "index numbers", frequently asked for all competitive examinations.

Index numbers are commonly used in the study of economics. As mentioned above, index numbers help to define a variable relative to the level in a particular period. Thereafter, index numbers carry huge importance in economics due to their efficiency in measuring the changes. There are various types of index numbers, however, in recent times the most frequently used index number is the price index number.   

Index numbers are free from units of measurement because the index number shows the relative changes. For the construction of index number, there is a requirement of a minimum of two periods and a period which is stable economically and has no major crisis irrespective of whether the crises are caused by war, disease, strikes, shortage of food, etc. in normal terms this period is known to be as the normal period. 

MCQs on index numbers

  1. Which type of average is best to construct an index number?

    1. Arithmetic mean

    2. Harmonic mean

    3. Geometric mean

    4. All of the above 

 Answer: C) geometric mean 

2. Index number for the base year is always ________?

    1. 100
    2. 101
    3. 198
    4. 1000

Answer: A) 100

Explanation: base year index = 100

3. Qon means _______ for the given year?

    1.  price
    2. quantity in current
    3. commodity
    4.  quantity index 

Answer : D) quantity index 

  4.  Index number plays an important role in the field of ________?

    1. Economic and science 

    2. Economic and education

    3. Economic and business

    4. Economic and intelligence

Answer: C) economic and business

5. Index number used to measure the change in the number of goods is known as _________?

    1. Quantity index number 

    2. Simple 1. No

    3. Aggregate 1. No

    4. Appropriate 

Answer: A) quantity index number

6. The period for which the index number is determined is known as ______?

    1. Current period

    2. Base period

    3. Normal period

    4. None of the above 

 Answer: A) current period

7. Widely used weighted index is known as _______?

    1. Fisher’s ideal index

    2. Paasche’s index 

    3. Laspeyres index

    4. Marshall- Edgeworth index 

Answer: C) Laspeyres index 

8. Weighted index number can be classified into how many categories _____?

    1. Two

    2. Three

    3. Four

    4. Five 

Answer: A) two

9. An index number is called a simple index when it is computed from _____?

    1. Single variable

    2. Bi-variable 

    3. Multivariable 

    4. None of the above 

Answer: A) a single variable 

10. An index number that can serve many purposes is called ______?

    1. General-purpose index

    2. Cost of living index 

    3. Specific purpose index 

    4. None of the above 

Answer: A) general-purpose index 

11.  Factor reversal test is satisfied by which index ______?

    1. Simple GM of price relatives 

    2. Fisher’s ideal  index 

    3. Marshall- Edgeworth index 

    4. All of the above 

Answer: B) Fisher’s ideal index 

Explanation: Only Fisher’s ideal index satisfies the time-reversal test and factor reversal test. 

12. Index number was first ever constructed in which year _____?

    1. 1750

    2. 1760

    3. 1770

    4. 1764

Answer: D) 1764

13. Circular test an extension of ______?

    1. Unit test

    2. Circular test

    3. Time reversal test

    4. Factor reversal test

Answer: C) time reversal test 

14. The cost of living (CLI) is always the _______ index

    1. Price index

    2. Quantity index

    3. Weighted index

    4. Value index 

Answer: C) weighted index 

15. Fisher’s index number is based on _____ of Laspeyres index and Paasche’s index?

  1. Arithmetic mean

  2. Geometric mean

  3. Harmonic mean

  4. None of the above 

Answer: B) geometric mean 

Explanation: fisher’s index is based on the geometric mean of the Laspeyres index and Paasche’s index.

16. ____________ is the other name of the consumer’s price index?

    1. Wholesale price index number

    2. Cost of living  index

    3. Sensitive  index

    4. Composite  index 

Answer: B) cost of living index 

17.  To calculate dearness allowance, which of the following is necessarily required?

    1. Correlation

    2. Regression

    3. Index number 

    4. None of the above 

Answer: C) index number

Explanation: To increase the Dearness allowance, the government refers to the cost-of-living index.

18. To construct an index number, which one can be the problem from the options below?

    1. Big formula

    2. Tedious job

    3. Purpose of index number

    4. None of the above 

Answer: C) purpose of index number 

19. What does this statement mean “price index of the base year concerning 125”?

    1. 25% of the price has increased in the current year in comparison to the base year

    2. 125%  of the price has increased in the current year in comparison to the base year

    3. 100%  of the price has increased in the current year in comparison to the base year

    4. None of the above 

Answer: 25% of the price has increased in the current year in comparison to the base year

20. In which term can the index number be categorized?

    1. Variable

    2. Constant

    3. Number

    4. None of the above

Answer: variable

21. Purchasing power of money is stated as _____    price index?

    1. Equal to 

    2. Unequal to

    3. Reciprocal of 

    4. None 

Answer: C) reciprocal of 

22. Index numbers are known as a specific type of ____?

    1. Average

    2. Correlation

    3. Dispersion

    4. None

Answer: A) average

Explanation: index number is known to be a representative of a special case of averages, especially for a weighted average.  

23. Index number is also known as economic ___________?

    1. Parameter

    2. Barometer

    3. Constant

    4. None

Answer: B) barometer

24. Which of the following is known as the ideal index number?

    1. Fisher’s

    2. Paasches

    3. Laspeyres 

    4. None

Answer: A) Fisher’s 

Explanation: fisher’s ideal index number is known as the ideal index number. 

25. Weight in Laspeyres price index number is known as _____?

    1. Quantity during the current year

    2. Quantity in the base year

    3. Price during the current year

    4. Price in the base year

Answer:  B) quantity in the base year

26. Weight in Paasche’s price index number is known as ____?

    1. Quantity during the current year

    2. Quantity in the base year

    3. Price during the current year

    4. Price in the base year

Answer: A) quantity during the current year

27.  In case the values are of equal importance, then the index number is known as ______?

    1. Weighted 

    2. Composite

    3. Unweighted

    4. Value index

Answer: C) Unweighted

28. Calculate fisher’s ideal index, given Laspeyres index = 110, Paasche’s index = 108.

    1. 100

    2. 108

    3. 109

    4. 110

Answer: c) 109

29. In the consumer price index, the household budget method is also known as ____?

    1. Simple average of relatives

    2. Average of weights

    3. The weighted average of relatives

    4. All of the above

Answer: C) weighted average of relatives

30. Which one of the following is the use of an index number?

    1. To measure changes in quantity

    2. To measure changes in demand

    3. To measure changes in price

    4. To measure changes in variables over a period of time. 

Answer : D)To measure changes in variables over a period of time. 

Explanation: Index number is nothing but a method to evaluate differences in variables or a group of variables with regards to time, location and other features. 

31.  What is the use of a simple aggregate quantity index?

    1. Measure the changes in the quantity of product

    2. Measure the changes in the quantity of a range of product

    3. Measure the overall changes in the price of a range of a product

    4. Measure the changes in the price of a product

Answer: C) Measure the overall changes in the price of a range of a product

32. The weighted system changes with ______?

    1. Quarter

    2. Year

    3. Time

    4. None

Answer: C) time

Explanation: the weighted system changes with time i.e., on a timely basis. 

33. Price index numbers measure the changes in ________?

    1. Single variable

    2. Relative changes in prices of a commodity between two periods 

    3. The physical quantity of the produced goods

    4. None of the above 

Answer: B) Relative changes in prices of a commodity between two periods

34. Which of the following index measures the change from month to month in the cost of a representative “basket” of goods and services of the type which are brought by a typical household?

    1. Retails price index

    2. Laspeyres price index

    3. Financial time index

    4. Paasche’s price index 

Answer : D) Paasche’s price index 

35. Which of the below is another object to determine the index number?

    1. Index  number

    2. Reliable

    3. Scope

    4. Special purpose

Answer: C) scope

36. When the ratio of a sum of prices in the current period to the sum of prices in the base period is expressed in the form of a percentage, it is known as :

    1. Simple price index number

    2. Simple aggregate price index number

    3. Quantity index number

    4. The weighted aggregative price index 

Answer: B) Simple aggregate price index number

37. To measure the relative change in purchasing a specific basket of goods and services between two periods of a certain locality with a group of people with fixed incomes, which of the below can be used :

  1. Consumer price index

  2. Pasche’s price index

  3. Cost of living index

  4. Both (A) and (C) 

Answer : D) both (A) and (C) 

38. Commodities that show a considerable price fluctuation can be measured by _________  index?

    1. Value

    2. Price

    3. Quantity

    4. None 

Answer: C)  quantity index 

39. Which of the following are the limitations of using an index number?

    1. It is only useful for short term comparison

    2. It ignores the quantity of the commodity

    3. The use of each of the indexes is restricted for a specific purpose

    4. All of the above

Answer: D) all of the above