A major limitation of a fixed-base index is that it may:
Correct answer: D. Become less representative over time
- A. Use no reference period
- B. Always produce a value below 100
- C. Prevent comparison with the base year
- D. Become less representative over time
Explanation
Consumer habits, technology and available products may change, making an old fixed basket less representative. A fixed-base index still has a reference period and can be above or below 100.
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About Index Numbers
Index numbers measure relative changes in prices, quantities or values over time using a base period. Work includes simple and weighted price indices, aggregate methods, consumer price calculations, percentage change and purchasing power, with attention to choosing a base year and interpreting an index rather than treating it as an absolute amount.
Practise Index Numbers
30 free Index Numbers MCQs from Quantitative Methods, each with the correct answer and an explanation. Unlimited attempts, no account needed.
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