What does the time-reversal test require of a satisfactory price index?
Correct answer: B. Its two time directions should give reciprocal results
- A. Its price and quantity indexes should be equal
- B. Its two time directions should give reciprocal results
- C. Its index should remain below 100
- D. Its base-year quantities should remain unchanged
Explanation
The time-reversal test requires that reversing the base and current periods produces reciprocal index values, subject to the chosen scale. Equality between price and quantity indexes is not the requirement of this test.
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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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