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CA Foundation · Quantitative Aptitude · Index Numbers

The wholesale price index (base 2016 = 100) for a commodity group is 125 in 2020 and 150 in 2024. A trader says that prices rose by 25% between 2020 and 2024 because 150 − 125 = 25. Which statement is correct?

The rise is 25 percentage points of the 2016 base, but the percentage increase from 2020 to 2024 is 20%, calculated as 25 divided by 125 times 100. Index point differences should not be mistaken for percentage changes on a later base.

  1. AThe trader is correct, since the difference in index points equals the percentage change
  2. BThe rise is 25 percentage points on the base 2016, but the percentage rise over 2020 is 20%Correct
  3. CThe rise is 16.67% because the change is divided by 150
  4. DThe rise is 50%, as the index is measured from the base year

Explanation

The change is 25 index points, which are percentage points relative to the 2016 base. The percentage change over 2020 is (150 − 125)/125 × 100 = 20%. Dividing by 150 gives 16.67%, which uses the wrong base (the later year). The 50% figure is the rise since 2016, not since 2020.

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