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This section includes 7 InterviewSolutions, each offering curated multiple-choice questions to sharpen your Current Affairs knowledge and support exam preparation. Choose a topic below to get started.
| 1. |
Describe the uses of index number. What considerations are taken into account while selecting the base year for the preparation of an index number ? |
| Answer» 1 .Index numbers are used in the fields of commerce, meteorology, labour, industry, etc.2. Index numbers measure fluctuations during intervals of time, group differences of geographical position of degree, etc.3. Index numbers are used in the fields of commerce, meteorology, labour, industry, etc.4. Index numbers measure fluctuations during intervals of time, group differences of geographical position of degree, etc.1. the base period should be normal year.2. it should be neither too short nor too long.3. it should not be the period for which actual data are not available.4. it should not be too far back in the past. | |
| 2. |
What are the considerations underlying the choice of base period in the constructions of an index number? |
| Answer» 1. the base period should be normal year.2. it should be neither too short nor too long.3. it should not be the period for which actual data are not available.4. it should not be too far back in the past. | |
| 3. |
What is the difference between a price index and a quantity index ? |
| Answer» Price index measures the relative or percentage change in the price level of certain goods and services. Whereas, quantity index measures the change in the physical volume of production, construction and employment. | |
| 4. |
Price Relatives `=("Current Year Price")/(?)xx100`A. Reference year priceB. Periodic year priceC. Base year priceD. both (a) and (c) |
| Answer» Correct Answer - D | |
| 5. |
Rate of inflation is equal to: [A = Price index]A. `(A_(1))/(A_(2)+A_(1))xx100`B. `(A_(2)+A_(1))/(A_(1))xx100`C. `(A_(1))/(A_(2)-A_(1))xx100`D. `(A_(2)-A_(1))/(A_(1))xx100` |
| Answer» Correct Answer - D | |
| 6. |
Consumer Price Index is also known as:A. Industrial Production IndexB. Cost of Living IndexC. Wholesale Price IndexD. none of these |
| Answer» Correct Answer - B | |
| 7. |
Explain the significance of index numbers. |
| Answer» Index numbers are important in economic statistics. In simple terms, an index (or index number) is a number displaying the level of a variable relative to its level (set equal to 100) in a given base period. Index numbers are intended to study the change in the effects of such factors which cannot be measured directly. | |
| 8. |
State the major commodity groups in the Consumer Price Index for Industrial Workers in India. |
| Answer» These are: CPI for Industrial Workers (IW), CPI for Agricultural Labourers (AL), CPI for Rural Labourers (RL) | |
| 9. |
Why do we need an index number ? |
| Answer» Index numbers are used to measure changes in the value of money. A study of the rise or fall in the value of money is essential for determining the direction of production and employment to facilitate future payments and to know changes in the real income of different groups of people at different places and times. | |
| 10. |
State one principal limitation of index numbers. |
| Answer» One principal limitation of index number is that owing to difference in the unit of currency as well as difference in the composition of production (and consumption ) across different countries of the world, it is often very difficult to construct Index Numbers that facilitate international comparisons. | |
| 11. |
What are the desirable properties of the base period ? |
| Answer» (i) The base year should be a normal period and periods in which extraordinary events have occurred should not be taken as base period as they are not appropriate for general comparison.(ii) Extreme values should not he selected as base period.(iii) The period should not be too far in the past as comparison with current period cannot be done with such base year as policies, economic and social conditions change with time.(iv) Base period should he updated periodically. | |
| 12. |
Name the categories in which index numbers are classified in economics. |
| Answer» There are three types of index numbers which are generally used. They are price index, quantity index and value index. These index numbers can be developed either by aggregate method or by average of relative method. | |
| 13. |
Distinguish between simple and weighted price indexes. |
| Answer» In simple index numbers only prices are taken into account where consumption pattern of different items is assumed to be same. But if we think practically then consumption of sugar & gold is not same. Or consumption of salt & oil is not same.Therefore value of the items & total value is different than that of actual. Therefore, in weighted index numbers weights are used. Theses weights are supposed to take care of consumption & hence will give true value & index number should reflect the actual situation.. | |
| 14. |
State the principal types of index numbers. |
| Answer» 1. simple index number2. weighted index number | |
| 15. |
State four difficulties of constructing index numbers. |
| Answer» 1. Difficulties in the Selection of the Base Period:The first difficulty relates to the selection of the base year. The base year should be normal. But it is difficult to determine a truly normal year.Difficulties in the Selection of Commodities:The selection of representative commodities for the index number is another difficulty. The choice of representative commodities is not an easy matter. They have to be selected from a wide range of commodities which the majority of people consume3.Difficulties in the Collection of Prices:Another difficulty is that of collecting adequate and accurate prices. It is often not possible to get them from the same source or place. Further, the problem of choice between wholesale and retail prices arises.4. Difficulty of Selecting the Method of Averaging:Another difficulty is to select an appropriate method of calculating averages. There are a number of methods which can be used for this purpose. But all methods give different results from one another. | |
| 16. |
What are the four principal features of index numbers? |
| Answer» (i) Index numbers are a special type of average. Whereas mean, median and mode measure the absolute changes and are used to compare only those series which are expressed in the same units, the technique of index numbers is used to measure the relative changes in the level of a phenomenon where the measurement of absolute change is not possible and the series are expressed in different types of items.(ii) Index numbers are meant to study the changes in the effects of such factors which cannot be measured directly. For example, the general price level is an imaginary concept and is not capable of direct measurement. But, through the technique of index numbers, it is possible to have an idea of relative changes in the general level of prices by measuring relative changes in the price level of different commodities.iii) The technique of index numbers measures changes in one variable or group of related variables. For example, one variable can be the price of wheat, and group of variables can be the price of sugar, the price of milk and the price of rice.(iv) The technique of index numbers is used to compare the levels of a phenomenon on a certain date with its level on some previous date (e.g., the price level in 1980 as compared to that in 1960 taken as the base year) or the levels of a phenomenon at different places on the same date (e.g., the price level in India in 1980 in comparison with that in other countries in 1980). | |
| 17. |
What is the difference between simple index number and weighted index number? |
| Answer» In simple index numbers only prices are taken into account where consumption pattern of different items is assumed to be same.... But if we think practically then consumption of sugar & gold is not same... Or consumption of salt & oil is not same... Therefore value of the items & total value is different than that of actual... Therefore, in weighted index numbers weights are used.. Theses weights are supposed to take care of consumption & hence will give true value & index number should reflect the actual situation... | |
| 18. |
State the four principle importance of index numbers. |
| Answer» (a) Measures Changes in Price Level and Standard of Living:Index number of prices is a method through which we can measure changes in the price level over time. This means that whether a country faces inflation or deflation can be known from the index number of prices.(b) Regulation of Wage Rate:Salaries and wages and dearness allowances are revised by the government when price level changes. Higher wages and dearness allowances are often given by the appropriate authorities when index numbers of prices rise so as to protect the real income of the workers.(c) Determination of Government Policies:Index numbers of prices serve as guide to government policies. The price stability objective of the government policy is based on index numbers. It formulates policies to control inflation and deflation.(d) Guide for Businessmen:Index numbers also serve as a guide to businessmen. Rising prices as indicated by index numbers may create an atmosphere of optimism. | |
| 19. |
What is price relative method of constructing index number ? |
| Answer» Price relative refers to the percentage ratio of the value of a variable in the current year to its value in the year chosen as the base. | |
| 20. |
Which of the following formulae is propounded by Fisher ?A. `P_(01)=(sump_(1)q_(1))/(sump_(0)q_(1))`B. `P_(01)=(sump_(1)q_(0))/(sump_(0)q_(0))xx100`C. `P_(01)=sqrt((sump_(1)q_(0))/(sump_(0)q_(0))xx(sump_(1)q_(1))/(sump_(0)q_(1)))xx100`D. none of these |
| Answer» Correct Answer - C | |
| 21. |
State the qualities of a good base year. |
| Answer» (i) The base year should be a normal period and periods in which extraordinary events have occurred should not be taken as base period as they are not appropriate for general comparison.(ii) Extreme values should not he selected as base period.(iii) The period should not be too far in the past as comparison with current period cannot be done with such base year as policies, economic and social conditions change with time.(iv) Base period should he updated periodically. | |
| 22. |
Define base year. What is its importance ? |
| Answer» A base year is used for comparison in the measure of a business activity or economic index.It is typically set to an arbitrary level of 100.Importance of base yearBase year is one with respect to which one wants to compare the economical changes.... As in our real life in a shop we expect that measuring apparatus must be balance in the same way base year is expected to be the normal year... It means none of the calamities have forced the abrupt changes in economical status... Such comparison will be valid & will lead to most acceptable conclusion about the economical condition... | |
| 23. |
Base year is also known as:A. current yearB. reference yearC. periodic yearD. both (a) and (c) |
| Answer» Correct Answer - B | |
| 24. |
Which of the following equations is correct ?A. `P_(01)=(sumRW)/(sumW)xx100`B. `P_(01)=(sumRW)/(sumW)`C. `P_(01)=(sumW)/(sumRW)xx100`D. `P_(01)=(sumW)/(sumRW)` |
| Answer» Correct Answer - B | |
| 25. |
An index number is useful forA. For making government policiesB. For future plans by the businessmenC. For measuring success of planningD. All the above |
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Answer» Correct Answer - D D |
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