Index NumbersMCQMTP June 24 Series IQuestion 3864 of 197
All Questions

The number of test of Adequacy in Index numbers:

Options

A2\displaystyle 2
B3\displaystyle 3
C4\displaystyle 4
D5\displaystyle 5
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Correct Answer

✅ Option c — 4\displaystyle 4

All Options:

  • A2\displaystyle 2
  • B3\displaystyle 3
  • C4\displaystyle 4
  • D5\displaystyle 5

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Detailed Solution & Explanation

In index number theory, there are exactly **four** tests of adequacy used to evaluate the mathematical consistency of various index number formulas. These tests are: 1. **Unit Test**: Requires that the index number formula remains independent of the physical units in which prices and quantities are measured. 2. **Time Reversal Test (TRT)**: Requires that the index calculated forward in time (P01\displaystyle P_{01}) and backward in time (P10\displaystyle P_{10}) should be reciprocals of each other: P01×P10=1P_{01} \times P_{10} = 1 3. **Factor Reversal Test (FRT)**: Requires that the product of the price index (P01\displaystyle P_{01}) and quantity index (Q01\displaystyle Q_{01}) equals the ratio of the total values in the current and base years: P01×Q01=∑p1q1∑p0q0P_{01} \times Q_{01} = \frac{\sum p_1 q_1}{\sum p_0 q_0} 4. **Circular Test**: An extension of the Time Reversal Test to three or more periods (say 0\displaystyle 0, 1\displaystyle 1, and 2\displaystyle 2) to facilitate base-shifting: P01×P12×P20=1P_{01} \times P_{12} \times P_{20} = 1 Thus, there are 4\displaystyle 4 tests of adequacy. Hence, **Option C** is the correct answer.

About This Chapter: Index Numbers

Paper

Paper 3: Quantitative Aptitude

Weightage

4-6 Marks

Key Topics

Construction of Index Numbers, Time Series

This chapter covers Construction of Index Numbers, Time Series and is part of Paper 3: Quantitative Aptitude in the CA Foundation exam.

View Official ICAI Syllabus

Exam Strategy Tip

This topic carries 4-6 Marks weightage. Focus on understanding core concepts rather than memorizing.

Key Concepts to Understand

Index Number

A statistical device for measuring changes in the magnitude of a group of related variables (like prices or production) over time.

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More Questions from Index Numbers

In price index, when a new commodity is required to be added, which of the following index is used?

Fisher's ideal formula for calculating index number satisfies the ________

Shifted Price Index = Original Price IndexPrice Index of the year on which it has to be shifted×100\displaystyle \frac{\text{Original Price Index}}{\text{Price Index of the year on which it has to be shifted}} \times 100

If Laspeyres's Index Number is 250 and Paasche's Index Number is 160, then Fisher's Index number is

If ∑P0q0=240\displaystyle \sum P_0q_0 = 240, ∑P1q0=480\displaystyle \sum P_1q_0 = 480, ∑P0q1=600\displaystyle \sum P_0q_1 = 600 and ∑P1q1=192\displaystyle \sum P_1q_1 = 192, then Laspeyres's Index Number is

If ΣPnqn=249\displaystyle \Sigma P_n q_n = 249, ΣP0q0=150\displaystyle \Sigma P_0 q_0 = 150, ΣPnq0=145\displaystyle \Sigma P_n q_0 = 145 and Paasche's Index Number = 150, then Fisher's Ideal Price Index Number is

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