The factor reversal test for index numbers requires that the product of the price index and quantity index equal the:
Correct answer: B. Value index
- A. Base-period expenditure
- B. Value index
- C. Current-period expenditure
- D. Simple aggregative index
Explanation
The factor reversal test requires P01 multiplied by Q01 to equal V01, the value index. This condition checks whether price and quantity changes together explain the change in total value.
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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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More Index Numbers questions
A desirable technical property of an index number is that its value should not change merely because the units of measurement change. This property is called the:
If a price index increases from 100 to 128, the percentage increase in prices is:
Which statement describes a quantity index number?
A consumer price index is most directly used to measure changes in the cost of:
If the current-period prices of every commodity rise by the same proportion while quantities remain unchanged, a suitable price index will generally:
An index number of 85 for a later period, with the base period equal to 100, indicates that the measured level has: