Completing Statements MCQs for Sub-Topics of Topic 14: Index Numbers & Time-Based Data

Question 1. Index numbers are specialized averages designed to measure the change in the magnitude of a phenomenon over a period of time or from one place to another. Essentially, they compare ________.

(A) Absolute values across categories

(B) Relative changes over time or space

(C) Only price fluctuations

(D) Total quantities of different items

Question 2. The index number for the base period is conventionally taken as ________.

(A) The sum of price relatives

(B) 0

(C) 100

(D) The average price

Question 3. A price relative for a commodity in the current period is calculated by dividing the current price by the base period price and multiplying by 100. If the price of sugar was $\textsf{₹}$ 30/kg in the base year and is $\textsf{₹}$ 36/kg in the current year, the price relative is ________.

(A) $36/30 \times 100 = 120$

(B) $(36-30)/30 \times 100 = 20$

(C) $30/36 \times 100 \approx 83.33$

(D) $36/30 = 1.2$

Question 4. A quantity index measures the average change in the ________ of a group of commodities.

(A) Prices

(B) Values

(C) Quantities

(D) Price relatives

Question 5. A major advantage of using index numbers compared to just looking at absolute price changes is that they ________.

(A) Provide the exact monetary increase

(B) Give a relative measure of change, making comparisons easier

(C) Eliminate the need for a base period

(D) Only focus on a single item

Question 6. The selection of the base period is critical because it serves as the ________ for all subsequent comparisons.

(A) Current point

(B) Random selection

(C) Benchmark or reference point

(D) Final destination

Question 7. If an index number for the current period is exactly 100 with the base period index being 100, it signifies that the aggregated value or level of the variable in the current period is ________ the base period.

(A) Higher than

(B) Lower than

(C) The same as

(D) Unrelated to

Question 8. Index numbers can be used to compare price changes of a basket of goods between different cities in India at the same point in time. This use demonstrates their ability to compare changes across ________.

(A) Time periods

(B) Geographical locations

(C) Different commodities

(D) Different calculation methods

Question 9. The 'current period' in the context of index numbers is the period for which the index is being calculated and ________.

(A) Is always the latest year

(B) Serves as the base for future indices

(C) Is compared against the base period

(D) Has an index value of 100

Question 10. A primary use of price indices in an economy is to measure changes in the general price level, commonly known as ________.

(A) Productivity

(B) Economic growth

(C) Inflation or deflation

(D) Employment rates

Question 1. In the Simple Aggregate Price Index, the calculation involves summing the prices of all selected commodities in the current period and dividing by the sum of prices in the base period, then multiplying by 100. What is being aggregated directly?

(A) Price relatives

(B) Quantities

(C) Prices

(D) Values

Question 2. A significant drawback of the Simple Aggregate Quantity Index is that it is influenced by the ________ used to measure quantities, making the sum potentially meaningless if units differ greatly (e.g., kgs of rice and metres of cloth).

(A) Time period

(B) Prices

(C) Units of measurement

(D) Number of items

Question 3. In the Simple Average of Price Relatives method, how are the individual price relatives for each commodity used to compute the overall index?

(A) They are multiplied together.

(B) Their sum is taken directly.

(C) Their arithmetic (or geometric) mean is calculated.

(D) They are weighted by quantities.

Question 4. Simple index methods implicitly or explicitly give ________ to the price or quantity change of each commodity included in the calculation.

(A) Equal weight

(B) Weight proportional to its price

(C) Weight proportional to its quantity

(D) No weight

Question 5. The Simple Aggregate Price Index is sensitive to the units of measurement. For instance, changing the unit of price for one item (e.g., from $\textsf{₹}$/kg to $\textsf{₹}$/quintal) will change the sum of prices and thus the index value. This highlights a problem related to ________.

(A) Base year bias

(B) Weighting issue

(C) Unit variability

(D) Calculation error

Question 6. Consider two commodities. Price of A: $\textsf{₹}10$ (Base), $\textsf{₹}20$ (Current). Price of B: $\textsf{₹}100$ (Base), $\textsf{₹}150$ (Current). Which of the following statements is NOT correct regarding simple index methods for these two commodities?

(A) The Simple Aggregate Price Index is $\frac{$20+150$}{10+100} \times 100 = \frac{170}{110} \times 100 \approx 154.55$.

(B) The price relative for A is 200.

(C) The price relative for B is 150.

(D) The Simple Average of Price Relatives (AM) is $\frac{$200+150$}{2} = 175$.

Question 7. Simple index methods are generally NOT recommended for constructing important indices like CPI or WPI because:

(A) They are too complex to calculate.

(B) They do not account for the different consumption patterns or importance of commodities.

(C) They fail to satisfy desirable theoretical tests of adequacy (generally).

(D) They require detailed quantity data which is often hard to obtain.

Question 8. For constructing a Simple Quantity Index using the Simple Aggregate Method, which of the following is NOT required?

(A) Quantities in the current period.

(B) Quantities in the base period.

(C) Prices in the current period.

(D) Summation of quantities.

Question 9. Which of the following is NOT a limitation shared by both Simple Aggregate and Simple Average of Price Relatives methods?

(A) They don't use explicit weights for commodities.

(B) They can be distorted by disproportionate changes in some items.

(C) They are highly sensitive to the units of measurement for prices.

(D) They do not reflect changes in overall expenditure patterns.

Question 10. If prices of two commodities are $\textsf{₹}10, \textsf{₹}10$ in the base year and $\textsf{₹}12, \textsf{₹}15$ in the current year. Which of the following is NOT true about the Simple Aggregate Price Index and Simple Average of Price Relatives (AM)?

(A) Simple Aggregate Index = $\frac{$12+15$}{10+10} \times 100 = \frac{27}{20} \times 100 = 135$.

(B) Price relative for 1st commodity = 120.

(C) Price relative for 2nd commodity = 150.

(D) Simple Average of Price Relatives (AM) = $\frac{$135$}{2} = 67.5$.

Question 1. Weighted index numbers are considered more refined than simple methods because they explicitly incorporate the ________ of each commodity in the overall index calculation.

(A) Price

(B) Quantity

(C) Importance or weight

(D) Price relative

Question 2. Laspeyres Price Index ($P_{01}^L$) uses the quantities of the ________ as weights.

(A) Current period

(B) Base period

(C) Average of base and current periods

(D) Median period

Question 3. Paasche Price Index ($P_{01}^P$) uses the quantities of the ________ as weights.

(A) Current period

(B) Base period

(C) Average of base and current periods

(D) Median period

Question 4. In the context of Laspeyres Price Index, $\sum P_n Q_0$ represents the total value of the base period basket of goods at ________.

(A) Base period prices

(B) Current period prices

(C) Average prices

(D) Wholesale prices

Question 5. In the context of Paasche Price Index, $\sum P_n Q_n$ represents the total value of the current period basket of goods at ________.

(A) Base period prices

(B) Current period prices

(C) Average prices

(D) Wholesale prices

Question 6. Fisher's Ideal Index is constructed as the geometric mean of the Laspeyres and Paasche Price Indices. Its primary purpose is to ________.

(A) Simplify calculations

(B) Measure only quantity changes

(C) Attempt to balance the biases of Laspeyres and Paasche

(D) Use only base period data

Question 7. The Marshall-Edgeworth index uses the average of the base period and current period quantities as weights. This means its formula involves sums like $\sum P_n (Q_0 + Q_n)$. This approach aims to ________.

(A) Ignore quantity changes

(B) Incorporate information from both periods for weighting

(C) Only use the most recent data

(D) Be simpler than Laspeyres or Paasche

Question 8. Which of the following weighted aggregate price indices requires collecting quantity data for *both* the base period and the current period for its calculation?

(A) Laspeyres Price Index

(B) Paasche Price Index

(C) Fisher's Ideal Index

(D) Both Paasche and Marshall-Edgeworth indices directly use current quantity data.

Question 9. In the Weighted Average of Price Relatives method, when using base period value weights ($W_i = P_{0i} Q_{0i}$), the resulting index is mathematically equivalent to the ________.

(A) Simple Average of Price Relatives

(B) Paasche Price Index

(C) Laspeyres Price Index

(D) Marshall-Edgeworth Index

Question 10. The Laspeyres price index tends to have an upward bias because it uses base period quantities as weights and doesn't account for the ________, where consumers switch to relatively cheaper goods when prices change.

(A) Income effect

(B) Substitution effect

(C) Inflation effect

(D) Quality effect

Question 1. The Time Reversal Test implies that if we compute the index number from period 0 to period n ($P_{0n}$) and then from period n back to period 0 ($P_{n0}$), the product of these two indices should be equal to ________ (when indices are expressed as ratios, not percentages).

(A) 0

(B) 1

(C) 100

(D) $P_{0n}^2$

Question 2. The Factor Reversal Test states that the product of a price index ($P_{0n}$) and a quantity index ($Q_{0n}$) (both using the same formula) should be equal to the ________, which measures the change in total monetary value.

(A) Simple Aggregate Index

(B) Base Period Value

(C) Value Index ($V_{0n}$)

(D) Average Index

Question 3. Which index formula, among the standard weighted aggregate methods, satisfies the Factor Reversal Test?

(A) Laspeyres Price Index

(B) Paasche Price Index

(C) Fisher's Ideal Price Index

(D) Marshall-Edgeworth Index

Question 4. The mathematical condition for the Circular Test for three periods 0, 1, and 2 is $P_{01} \times P_{12} = P_{02}$. This test ensures that the index calculation is consistent when the base period is ________.

(A) Changed cyclically

(B) Reversed

(C) Shifted forward over multiple periods

(D) Adjusted for factors

Question 5. The Circular Test is particularly important for long-term comparisons or when index series are ________ together, as failing the test implies inconsistencies in such combined series.

(A) Averaged

(B) Multiplied

(C) Chained or spliced

(D) Decomposed

Question 6. Which of the following commonly used weighted index formulas generally does NOT satisfy the Circular Test?

(A) Simple Geometric Mean of Price Relatives

(B) Laspeyres Price Index

(C) Paasche Price Index

(D) All of the above (among the listed options which are commonly used weighted indices or related simple indices)

Question 7. Failing the Time Reversal Test means that the index calculated from period 0 to n is not the reciprocal of the index calculated from period n to 0. This indicates a lack of ________ in the index formula's treatment of time periods.

(A) Consistency

(B) Flexibility

(C) Simplicity

(D) Randomness

Question 8. Failing the Factor Reversal Test implies that the index formula does not provide a consistent relationship between the measure of price change and the measure of quantity change such that their product equals the change in ________.

(A) Base quantity

(B) Current price

(C) Total value

(D) Average relative

Question 9. While considered "Ideal" for satisfying Time and Factor Reversal Tests, Fisher's Ideal Index does NOT satisfy the ________ test, which is important for chaining indices over multiple periods.

(A) Unit Test

(B) Circular Test

(C) Base Period Test

(D) None of the above

Question 10. The Marshall-Edgeworth index satisfies the Time Reversal Test but generally does NOT satisfy the ________ test.

(A) Unit Test

(B) Factor Reversal Test

(C) Circular Test

(D) Both B and C

Question 1. The defining characteristic of time series data is that the observations are recorded ________.

(A) Independently

(B) At irregular intervals

(C) In a specific sequence over time

(D) From different sources simultaneously

Question 2. Are the observations in a typical time series usually independent of each other?

(A) Yes, they are always independent.

(B) No, they are usually dependent on preceding observations.

(C) It depends on the type of variable.

(D) Only if the data is collected monthly.

Question 3. What type of plot is most commonly used to visualize time series data?

(A) Bar chart

(B) Pie chart

(C) Scatter plot of two variables

(D) Line graph with time on the horizontal axis

Question 4. The primary goal of analyzing univariate time series is to understand the underlying patterns and ________.

(A) Summarize data using mean and variance

(B) Compare the variable across different groups

(C) Predict or forecast future values of the single variable

(D) Determine cause-and-effect relationships

Question 5. Which of the following is another example of economic time series data?

(A) Price of gold on a particular day in Mumbai, Delhi, and Kolkata

(B) Distribution of income among households in India in 2022

(C) Quarterly unemployment rate in India over the past 15 years

(D) Number of cars of different brands sold last month

Question 6. In time series analysis, the specific order in which the observations occurred is ________.

(A) Irrelevant

(B) Important for identifying patterns

(C) Only relevant for calculating the mean

(D) Only relevant if the data is stationary

Question 7. Time series analysis helps in resource planning (e.g., inventory management) by enabling businesses to forecast future demand based on ________.

(A) Competitors' strategies

(B) Historical sales patterns over time

(C) Current economic conditions alone

(D) Expert opinions

Question 8. The 'forecast horizon' in time series analysis refers to the ________.

(A) Maximum value observed in the series

(B) Period for which future values are predicted

(C) Accuracy of the forecast

(D) Starting point of the time series

Question 9. Can time series analysis be applied to non-economic data, such as environmental measurements?

(A) No, it is strictly for economic data.

(B) Yes, it can be applied to any data recorded sequentially over time.

(C) Only if the data exhibits seasonality.

(D) Only if the data shows a clear trend.

Question 10. In time series, 'stationarity' refers to the property where the statistical characteristics of the series, such as the mean, variance, and autocorrelation, ________ over time.

(A) Change significantly

(B) Stay constant

(C) Exhibit seasonal patterns

(D) Show a clear trend

Question 1. The four standard components into which a time series is typically decomposed are Trend, Seasonal, Cyclical, and ________.

(A) Average

(B) Residual or Irregular

(C) Mean

(D) Weighted

Question 2. In the Additive Model of time series decomposition, the observed value ($Y$) is considered to be the ________ of its components ($T, S, C, I$).

(A) Product

(B) Sum

(C) Difference

(D) Quotient

Question 3. In the Multiplicative Model, the observed value ($Y$) is considered to be the ________ of its components ($T, S, C, I$).

(A) Product

(B) Sum

(C) Difference

(D) Quotient

Question 4. The component that represents the smooth, underlying long-term direction or movement in a time series, whether upward, downward, or stagnant, is called the ________.

(A) Seasonal Variation

(B) Cyclical Variation

(C) Secular Trend

(D) Irregular Variation

Question 5. The component that repeats with a fixed period, usually within a year (e.g., daily, weekly, monthly, quarterly), is the ________.

(A) Secular Trend

(B) Seasonal Variation

(C) Cyclical Variation

(D) Irregular Variation

Question 6. The component that represents fluctuations that are longer than a year but do not follow a fixed pattern or period, often associated with business cycles, is called the ________.

(A) Secular Trend

(B) Seasonal Variation

(C) Cyclical Variation

(D) Irregular Variation

Question 7. The component that accounts for the unpredictable, erratic, or random movements in a time series that are not explained by Trend, Seasonality, or Cyclical patterns is the ________.

(A) Secular Trend

(B) Seasonal Variation

(C) Cyclical Variation

(D) Irregular Variation

Question 8. The Multiplicative Model is generally more appropriate when the amplitude of seasonal and irregular variations ________ as the level of the time series increases.

(A) Stays constant

(B) Decreases

(C) Increases or is proportional

(D) Becomes zero

Question 9. An example of a factor that would typically cause Cyclical Variation in a time series is a ________.

(A) Spike in demand during Diwali festival

(B) Long-term increase in population

(C) Government's five-year economic plan resulting in boom and bust phases

(D) Sudden factory strike

Question 10. An example of an event that would cause Irregular Variation is a ________.

(A) Regular increase in electricity consumption during summer

(B) Gradual decline in birth rates over decades

(C) Recurrence of recession every 7-10 years

(D) Unexpected natural disaster like a major earthquake affecting production

Question 1. Among the methods for measuring the secular trend, the one that is considered the most subjective is the ________.

(A) Method of Least Squares

(B) Method of Semi-Averages

(C) Moving Average Method

(D) Freehand Curve Method

Question 2. The method that involves dividing the time series data into two equal parts and calculating the average for each part to determine the trend line is the ________.

(A) Moving Average Method

(B) Method of Least Squares

(C) Method of Semi-Averages

(D) Freehand Curve Method

Question 3. When calculating a moving average with an even period (e.g., 4-quarter moving average), centering is required. The purpose of centering is to ensure the moving average value aligns with the ________ of the period over which the average is computed.

(A) Beginning

(B) End

(C) Middle point

(D) Entire duration

Question 4. Which method of measuring trend fits a specific mathematical equation (like a straight line or parabola) to the time series data?

(A) Freehand Curve Method

(B) Moving Average Method

(C) Method of Semi-Averages

(D) Method of Least Squares

Question 5. A parabolic trend equation $Y_t = a + bt + ct^2$ is used instead of a straight line when the secular trend is observed to be ________.

(A) Linear

(B) Seasonal

(C) Non-linear, showing acceleration or deceleration

(D) Cyclical

Question 6. The Method of Least Squares minimizes the sum of the ________ between the observed values and the values predicted by the fitted trend line.

(A) Absolute differences

(B) Squared differences

(C) Percentage differences

(D) Differences

Question 7. A significant disadvantage of the Moving Average Method when used for forecasting is that it ________.

(A) Requires complex calculations

(B) Lags behind changes in the trend

(C) Provides a specific equation for prediction

(D) Smooths the data too much

Question 8. An advantage of the Moving Average Method is its flexibility to adapt to changes in the trend direction over time, as the average is always based on the ________ data points.

(A) Entire historical

(B) Base period

(C) Most recent

(D) Randomly selected

Question 9. In the Method of Least Squares for a straight line $Y_t = a+bt$, if time 't' is coded such that $\sum t = 0$, the formula for the Y-intercept 'a' simplifies to ________.

(A) $\sum tY / \sum t^2$

(B) $\sum Y / N$

(C) $(\sum Y - b \sum t) / N$

(D) $\sum t / N$

Question 10. In the Method of Least Squares for a straight line $Y_t = a+bt$, if time 't' is coded such that $\sum t = 0$, the formula for the slope 'b' simplifies to ________.

(A) $\sum Y / N$

(B) $\sum t / N$

(C) $\sum tY / \sum t^2$

(D) $\sum Y / \sum tY$

Question 1. In India, the Consumer Price Index (CPI) is released by the ________.

(A) Reserve Bank of India (RBI)

(B) Ministry of Finance

(C) National Statistical Office (NSO) under MoSPI

(D) Office of the Economic Adviser (OEA)

Question 2. The Wholesale Price Index (WPI) in India is primarily used to track price changes at the ________ level.

(A) Consumer retail

(B) Manufacturer or wholesale

(C) Import/Export

(D) Services sector

Question 3. The Index Numbers of Industrial Production (IIP) specifically measures changes in the ________ of the industrial sector.

(A) Price level

(B) Employment rate

(C) Volume of production

(D) Investment amount

Question 4. A common type of bias in CPI is the substitution bias, which arises because the index assumes consumers continue to buy the same basket of goods even if relative prices change, while in reality, consumers tend to ________.

(A) Increase consumption of all goods

(B) Substitute relatively cheaper goods for more expensive ones

(C) Reduce total consumption

(D) Ignore price changes

Question 5. The current base year for the Consumer Price Index (CPI) in India is ________.

(A) 2001

(B) 2005

(C) 2011-12

(D) 2012

Question 6. The current base year for the Wholesale Price Index (WPI) in India is ________.

(A) 2004-05

(B) 2010-11

(C) 2011-12

(D) 2016

Question 7. The CPI is used to adjust dearness allowance (DA) for government employees and pensioners. This adjustment aims to compensate them for the loss in their ________ due to inflation.

(A) Nominal income

(B) Savings

(C) Purchasing power (real income)

(D) Absolute income

Question 8. A key difference in coverage between CPI and WPI is that CPI includes both goods and services purchased by consumers, whereas WPI primarily tracks price changes of ________ at the wholesale level.

(A) Only services

(B) Only manufactured goods

(C) Goods, including primary articles, fuel, and manufactured products

(D) Only export items

Question 9. The IIP is a vital indicator for assessing the health and performance of the industrial sector, and it provides insights into the ________ growth of the economy.

(A) Agricultural

(B) Industrial production

(C) Services sector

(D) Overall price

Question 10. How does a change in the quality of a good (e.g., improved durability of a mobile phone at the same price) pose a problem for constructing price index numbers?

(A) It only affects quantity indices.

(B) It makes the price comparison difficult as the products in the base and current periods are not exactly the same.

(C) It lowers the index value automatically.

(D) It only affects simple index methods.