CMA Foundation · Fundamentals of Business Mathematics and Statistics · Index Numbers and Time Series
For some index formula, the price index for the current year on the base year is 1.6 and the index for the base year on the current year is 0.5. What is the product P01 × P10, and what does it show about the time reversal test?
The product is 1.6 multiplied by 0.5, which is 0.8. Since the time reversal test needs the two indices to multiply to exactly one, a product of 0.8 means the formula does not satisfy the test.
- A1.0; the test is satisfied
- B0.8; the test is not satisfiedCorrect
- C1.1; the test is not satisfied
- D2.1; the test is satisfied
Explanation
P01 × P10 = 1.6 × 0.5 = 0.8. The time reversal test requires the product to be exactly 1, so the formula fails it. A sum of 2.1 is irrelevant because the test uses a product.
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