MCQs on Index Numbers

An Index Number is a tool to evaluate the differences within a variable or a set of variables for things like time, geographical location or quantity. There are basically two types of index numbers: price index number and quantity index number.

Below is a list of multiple-choice questions and answers on Index Numbers to help students understand the topic better.

1. Which of the following are the major characteristics of index numbers?
   1. It is expressed in percentages
   2. It measures the net or relative changes in variables
   3. It measures changes over a period of time
   4. All of the above

Answer: d

2. The index number for base year is always ___________.
   1. 1000
   2. 200
   3. 100
   4. None of the above

Answer: c

3. The time period for which an index number is determined is known as ________.
   1. Base period
   2. Normal period
   3. Current period
   4. None of the above

Answer: c

4. Index number is a type of ____________.
   1. Dispersion
   2. Correlation
   3. Average
   4. None of the above

Answer: c

5. Which of the following statements is/are correct about average prices if the price index is 110?
   1. The prices have increased by 10 per cent
   2. The prices have increased by 110 per cent
   3. The prices have decreased by 10 per cent
   4. None of the above

Answer: a

6. Which of the following are limitations of using index numbers?
   1. The use of each index number is restricted to a specific object
   2. It ignores the quality of commodities
   3. It is useful only for short term comparison
   4. All of the above

Answer: d

7. Which of the following is the variation within two or more variable studies by the index?
   1. Price index
   2. Composite index
   3. Simple index
   4. None of the above

Answer: b

8. The weights used in a quantity index are ________.
   1. Quantity
   2. Values
   3. Price
   4. None of the above

Answer: c

9. Which of the following methods is used to calculate the Consumer Price Index?
   1. Laspeyres’s formula
   2. Fisher’s formula
   3. Palgrave’s formula
   4. None of the above

Answer: a

10. An index number that can serve many purposes is known as a _______.
    1. General purpose index
    2. Special purpose index
    3. Both a and b are incorrect
    4. Both a and b are correct

Answer: a

11. Fisher’s method of calculating the index number is based on the _______.
    1. Geometric mean
    2. Arithmetic mean
    3. Harmonic mean
    4. None of the above

Answer: a

12. What is the name of the monthly price index that takes price changes in consumer goods and services and uses it to determine changes in the price of those products over a period of time?
    1. Wholesale price index
    2. Consumer price index
    3. Paasche’s index
    4. None of the above

Answer: b

13. Which of the following is the index that is used to measure changes in total money value?
    1. Value index
    2. Price index
    3. Quantity index
    4. None of the above

Answer: a

14. Commodities that show considerable price fluctuations can be measured by a ________.
    1. Value index
    2. Price index
    3. Quantity index
    4. None of the above

Answer: c

15. The purchasing power of money is ________.
    1. Not equal to the price index number
    2. Reciprocal of the price index number
    3. Equal to the price index number
    4. None of the above

Answer: b

Also See:

• MCQs on Consumer Price Index (CPI)
• MCQs on Goods and Service Tax