# Category: Index Numbers

## Index Number: An Introduction

Index Number

An index number is a number that “measures a relative change in a variable or an average relative change in a group of related variables with respect to a base”. An index number indicates the level of certain phenomena at some given period in comparison with the level of the same phenomena at some reference period. The index numbers are usually constructed for economic variables such as price, quantity, wage, unemployment, investment, cost of living, etc.

Index numbers are free from units of measurement because they show relative changes. For ease of understanding, index numbers are expressed in percentages. To construct index numbers at least two periods are required and a period that is economically stable and has no major crisis caused by wars, diseases, strikes, food shortage, etc. known as the normal period is selected as a base. Index numbers of wholesale prices and consumer prices, etc. are published by the Federal Bureau of Statistics and State Bank of Pakistan.

### Uses/ Need of Index Number

There are many uses of index numbers but the most important are:

• Many economic plans and Government policies depend on index numbers, for example, to control raising prices government import from the other countries or give subsidy (financial support) to the manufacturer.
• Price index numbers are used to know the purchasing ability of money at different periods and places.
• Quantity index numbers are used to know the changes in the quantities produced, consumed, sold, purchased, imported or exported, etc.
• Consumer price index numbers are used to know standards of living of people and to know about the goods and services used by them.
• Index numbers are used to forecast the future economic trends
• Cyclical (long-term movements, which are in the form of oscillation) and seasonal (short term movement, which are linked with the seasons or movements which repeat themselves within a fixed period) movements are measured by index numbers.

### Shortcomings of Index Numbers

Index numbers can not be used freely due to the following shortcomings:

• Improper base period give misleading results. Base periods must be free from all types of crisis caused by wars, diseases, strikes, or food shortage, etc. If such a period is not available then average of some or all the periods is selected as base.
• Selection of favorite commodities is difficult because use of services and commodities by the individuals vary with the locality of people, social customs, standard of living, occupation, ideas of saving, courage of investment and sources of income, etc.
• Quality of a product cannot be observed at each point, that is, ball to ball commentary is difficult. For example, if we want to view the quality of cloth at each thread before purchasing it becomes impossible.
• Index numbers give rough measure of relative changes because sampling error or error of measurement may occur at the stages of gathering of data or base period may be improper or number of commodities may be less than required. According to Dr. Arriving Fisher the accuracy of index numbers may be increased by increasing the number of commodities.
• Different methods of index numbers usually give different results.
• Prices vary from place to place according to idea of profit of investors, expenditures on transportation and awareness about the psychology of buyers, hence their collection is difficult.

## MCQs Index Numbers Quiz 5

Multiple Choice Questions from Introductory Statistics for the preparation of exams and different tests. This page includes the Index Numbers Quiz for the preparation of different statistics and job-related examinations. Lets us start with the MCQ index numbers, which is the fifth quiz of index numbers.

Multiple Choice Questions from Introductory Statistics for the preparation of exams and different tests. This page includes the MCQs Quiz Index Numbers for the preparation of different statistics and job-related examinations.

1. Another name of consumer price index number is

2. Computing methods of consumer’s price index are

3. Complete the following table in which a chain-based index is being converted to one with a fixed base 1997. Give your answers correct to one decimal place.

4. Which method of construction of CPI number is the Laspeyres index number

5. Calculate the required index, using the formula $100\times \left(\frac{\Sigma wP_1}{\Sigma wP_0}\right)$ giving your answer to one dp.

6. You are assisting with the work on a maintenance department’s budget for the next quarter of 2000. The maintenance department’s budget for the current quarter (just ending) is $200,000. Its use of materials, and their respective prices, are shown below. You require an all-item price index for materials for the next quarter, using the current quarter as a base and the current quantities as weights. Complete the table by filling in the appropriate numerical value in the spaces indicated by the letters. 7. Base year weighted index numbers are 8. In 2000, a retail price index was 178 with 1990 = 100. Convert a weekly wage of$400 back to 1990 constant prices, giving your answer correct to the nearest penny.

9. Retail price index numbers are also called

10. Paasche’s price index number is

11. If a price index is 104, which of the following statements is/are correct about average prices?

12. Complete the following table which shows two index number series being spliced together to give a single series based on 1997. Give your answers correct to one dp.

13. If the price index ($100\times \left(\frac{\Sigma wP_1}{\Sigma wP_0}\right)$) calculated was 104, estimate the budget for the next quarter, giving your answer to the nearest $\$000$. You are assisting with the work on a maintenance department’s budget for the next quarter of 2000. The maintenance department’s budget for the current quarter (just ending) is$\$200,000$. Its use of materials, and their respective prices, are shown below.

14. If $\Sigma p_1q_0=403$, $\Sigma p_0q_0=283$, then index number is

15. Current year quantities are used as weights in

16. The index number given by $\frac{\Sigma p_nq_0}{\Sigma p_0q_0}\times 100$ is

17. Express the following average weekly wages as index numbers with base 1998 to 1 dp

18. The aggregate expenditure method and family budget method give

19. Which of the following statements about the base time is/are correct?

20. Fisher index number is _______ of Laspeyres and Paasche’s index numbers

Multiple Choice Questions about Index Number. The test about Index Numbers for the preparation of FPSC Statistical Officer will help you in online preparation for the post of Lecturers, Statistical Officers, and other statistics-related jobs.

• Construction of Index Numbers which follows steps (i) Object of Index Number, (ii) Choice of items, (iii) Choice of Base Period, (iv) Collection of Prices of Items, (v) Choice of Average, (vi) Selection of Proper Weights
• Fixed Base Method
• Chain Base Method
• Composite Index Numbers
• Un-Weighted Index Numbers which includes (i) Simple Aggregative Index Numbers, (ii) Simple Average of Relatives Index Numbers
• Weighted Index Numbers which includes (i) Weighted Aggregative Index Numbers, (ii) Weighted Average of Relatives Index Numbers
• The Weighted Aggregative Index Numbers includes (i) Laspeyre’s Index Number, (ii) Paasche’s Index Number, (iii) Fisher Idea Index Number, Value Index Number,
• Consumer Price Index Numbers. The important steps in the construction of CPI numbers include (i) Choosing the class of people, (ii) Selection of commodities, (iii) Budget Inquiry, (iv) Collection of Prices, (v) Calculation of CPI Numbers

## MCQs Index Numbers Quiz 4

Multiple Choice Questions from Introductory Statistics for the preparation of exams and different tests. This page includes the MCQs Quiz Index Numbers for the preparation of different statistics and job-related examinations. Lets us start with the MCQs index numbers, which is the fourth quiz of index numbers.

Please go to MCQs Index Numbers Quiz 4 to view the test

• Construction of Index Numbers which follows steps (i) Object of Index Number, (ii) Choice of items, (iii) Choice of Base Period, (iv) Collection of Prices of Items, (v) Choice of Average, (vi) Selection of Proper Weights
• Fixed Base Method
• Chain Base Method
• Composite Index Numbers
• Un-Weighted Index Numbers which includes (i) Simple Aggregative Index Numbers, (ii) Simple Average of Relatives Index Numbers
• Weighted Index Numbers which includes (i) Weighted Aggregative Index Numbers, (ii) Weighted Average of Relatives Index Numbers
• The Weighted Aggregative Index Numbers includes (i) Laspeyre’s Index Number, (ii) Paasche’s Index Number, (iii) Fisher Idea Index Number, Value Index Number,
• Consumer Price Index Numbers. The important steps in the construction of CPI numbers include (i) Choosing the class of people, (ii) Selection of commodities, (iii) Budget Inquiry, (iv) Collection of Prices, (v) Calculation of CPI Numbers

## MCQs Index Numbers 3

Multiple Choice Questions from Introductory Statistics for the preparation of exams and different tests. This page includes the Index Numbers test for the preparation of different statistics and job-related examinations. Lets us start with the index numbers quiz, which is the third test index numbers.

Please go to MCQs Index Numbers 3 to view the test

• Construction of Index Numbers which follows steps (i) Object of Index Number, (ii) Choice of items, (iii) Choice of Base Period, (iv) Collection of Prices of Items, (v) Choice of Average, (vi) Selection of Proper Weights
• Fixed Base Method
• Chain Base Method
• Composite Index Numbers
• Un-Weighted Index Numbers which includes (i) Simple Aggregative Index Numbers, (ii) Simple Average of Relatives Index Numbers
• Weighted Index Numbers which includes (i) Weighted Aggregative Index Numbers, (ii) Weighted Average of Relatives Index Numbers
• The Weighted Aggregative Index Numbers includes (i) Laspeyre’s Index Number, (ii) Paasche’s Index Number, (iii) Fisher Idea Index Number, Value Index Number,
• Consumer Price Index Numbers. The important steps in the construction of CPI numbers which includes (i) Choosing the class of people, (ii) Selection of commodities, (iii) Budget Inquiry, (iv) Collection of Prices, (v) Calculation of CPI Numbers