CA Foundation · Quantitative Aptitude · Index Numbers
In the construction of a Cost of Living Index (Consumer Price Index) by the aggregate expenditure method, which of the following expresses the index?
The aggregate expenditure method of the cost of living index is (Σp1q0 / Σp0q0) × 100. It values the base-year basket of quantities at current prices and compares that cost with the base-year cost, which is the Laspeyres form.
- A(Σp1q0 / Σp0q0) × 100Correct
- B(Σp0q1 / Σp0q0) × 100
- C(Σp1q1 / Σp0q0) × 100
- D(Σp0q0 / Σp1q0) × 100
Explanation
The aggregate expenditure method uses base-year quantities as weights, so the index is Σp1q0 divided by Σp0q0, times 100. Option B uses current quantities with base prices, which is a quantity-type ratio. Option D inverts the ratio and so measures the wrong direction of change.
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