CA Foundation · Quantitative Aptitude · Index Numbers
The time reversal test for an index number formula requires that, for the formula P01 (current year 1 on base year 0) and P10 (base year on current year), which of the following holds?
The time reversal test requires P01 × P10 = 1. When base and current years are swapped, the new index must be the reciprocal of the original one, so their product equals unity when expressed as ratios rather than percentages.
- AP01 + P10 = 1
- BP01 × P10 = 1Correct
- CP01 × P10 = 100
- DP01 − P10 = 0
Explanation
The time reversal test says that interchanging the base year and the current year should give the reciprocal of the original index. So P01 × P10 = 1 when indices are expressed as ratios. The option with 100 applies only if indices are expressed in percentages, and the sum or difference options are not the test.
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