CA Foundation · Quantitative Aptitude · Index Numbers
The factor reversal test is satisfied by a formula when the product of the price index P01 and the quantity index Q01, both computed by that formula, equals which of the following?
The factor reversal test requires the price index multiplied by the quantity index to equal the true value ratio, which is total current value Σp1q1 divided by total base value Σp0q0. Fisher's ideal formula satisfies this requirement.
- AΣp1q1 / Σp0q0Correct
- BΣp1q0 / Σp0q1
- CΣp0q0 / Σp1q1
- D(Σp1q1 − Σp0q0)
Explanation
The factor reversal test says that interchanging prices and quantities should give an index whose product with the original price index is the true value ratio, Σp1q1/Σp0q0. Option 3 is the inverse of this and option 2 mixes periods. Option 4 is an absolute difference, not a ratio.
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