Index Numbers MCQs

1. What are index numbers in statistics?
(A) Statistical measures used to show changes in variables over time
(B) Measures of central tendency
(C) Methods of data collection
(D) Techniques for classifying qualitative data

2. What is the primary purpose of index numbers?
(A) To measure relative changes in economic variables
(B) To identify the most frequent observation
(C) To calculate population size
(D) To measure geographical distance

3. Which of the following is a common application of index numbers?
(A) Measuring changes in the cost of living
(B) Identifying the median
(C) Classifying animals
(D) Measuring rainfall at a single location only

4. What is a base year in index number construction?
(A) The reference year against which changes are measured
(B) The most recent year in every dataset
(C) The year with the highest inflation
(D) The year in which data collection ends

5. What value is commonly assigned to the index number of the base year?
(A) 0
(B) 50
(C) 100
(D) 1000

6. Which index number measures changes in the general price level of goods and services?
(A) Price index
(B) Quantity index
(C) Value index
(D) Employment index

7. What does a quantity index measure?
(A) Changes in the physical quantities of goods
(B) Changes in market prices only
(C) Changes in consumer preferences only
(D) Changes in currency exchange rates only

8. What does a value index measure?
(A) Changes in the total monetary value of goods or services
(B) Changes in physical size only
(C) Changes in population density
(D) Changes in production techniques only

9. Which index is commonly used to measure changes in the cost of living?
(A) Consumer Price Index
(B) Industrial Production Index
(C) Stock Market Index
(D) Quantity Index

10. What does CPI stand for?
(A) Consumer Price Index
(B) Current Production Indicator
(C) Cost Performance Information
(D) Consumer Product Investment

11. Which index measures changes in prices received by producers?
(A) Consumer Price Index
(B) Producer Price Index
(C) Quantity Index
(D) Employment Index

12. What does PPI stand for?
(A) Public Price Indicator
(B) Producer Price Index
(C) Personal Purchasing Information
(D) Production Performance Index

13. Which index number uses quantities of the base year as weights?
(A) Laspeyres Price Index
(B) Paasche Price Index
(C) Fisher's Ideal Index
(D) Value Index

14. Which index number uses quantities of the current year as weights?
(A) Laspeyres Price Index
(B) Paasche Price Index
(C) Simple Aggregative Index
(D) Fixed Base Index

15. Which index is known as the ideal index number?
(A) Laspeyres Index
(B) Paasche Index
(C) Fisher's Ideal Index
(D) Simple Price Index

16. Why is Fisher's Ideal Index considered ideal?
(A) It combines Laspeyres and Paasche indices through their geometric mean
(B) It uses only base-year prices
(C) It ignores quantity changes
(D) It measures only consumer preferences

17. What is a simple aggregative price index?
(A) An index based on the aggregate prices of selected commodities
(B) An index based only on consumer income
(C) An index based on population growth
(D) An index that measures production efficiency

18. What is a weighted index number?
(A) An index in which different items are assigned different levels of importance
(B) An index in which all items are ignored
(C) An index based only on the most expensive item
(D) An index that does not use prices

19. Why are weights used in index number construction?
(A) To reflect the relative importance of different items
(B) To remove all price changes
(C) To increase the number of commodities
(D) To eliminate the base year

20. What is a fixed base index number?
(A) An index that compares every period with the same base period
(B) An index that changes its base every period
(C) An index that measures only current prices
(D) An index that ignores historical data

21. What is a chain base index number?
(A) An index in which each period is compared with the immediately preceding period
(B) An index that uses only one permanent base year
(C) An index that ignores changes over time
(D) An index that measures only quantities

22. What does a price index above 100 generally indicate when the base year is 100?
(A) Prices have increased relative to the base year
(B) Prices have decreased relative to the base year
(C) Prices have remained unchanged
(D) No price information is available

23. What does a price index below 100 generally indicate when the base year is 100?
(A) Prices have increased
(B) Prices have decreased relative to the base year
(C) Prices have remained unchanged
(D) Production has doubled

24. What is deflation of an index number?
(A) Converting nominal values into real values by removing the effect of price changes
(B) Increasing the base-year prices
(C) Removing all quantity data
(D) Increasing the rate of inflation

25. What is inflation as reflected by a consumer price index?
(A) A sustained increase in the general price level of consumer goods and services
(B) A decrease in the general price level
(C) An increase in the physical quantity of goods only
(D) A decrease in consumer income only

26. Which test examines whether an index gives consistent results when the time periods are reversed?
(A) Time Reversal Test
(B) Unit Test
(C) Sampling Test
(D) Normality Test

27. Which test examines consistency between price and quantity indices?
(A) Factor Reversal Test
(B) Time Reversal Test
(C) Significance Test
(D) Correlation Test

28. Which index number is commonly used to track changes in stock market prices?
(A) Stock Market Index
(B) Consumer Price Index
(C) Quantity Index
(D) Cost of Living Index

29. Which of the following is a major limitation of index numbers?
(A) They may not fully reflect changes in quality and consumer preferences
(B) They cannot measure price changes
(C) They cannot compare different periods
(D) They are never affected by the choice of base year

30. Why is the selection of a suitable base year important in constructing index numbers?
(A) It provides a meaningful reference for comparing changes over time
(B) It eliminates the need for collecting data
(C) It guarantees that prices will remain constant
(D) It removes the importance of weights