CA Foundation · Quantitative Aptitude · Index Numbers
Which of the following is a problem in the construction of an index number rather than a use-related limitation?
Selecting a normal base year, free from abnormal events such as war or famine, is a problem in constructing an index number. An abnormal base year would distort all later comparisons, so it must be chosen carefully when the index is designed.
- ASelecting the base year as a normal year, free from abnormal events like a famine or warCorrect
- BComparing the index of two countries with different bases without adjustment
- CUsing a price index to measure a change in quality of goods
- DUsing an old index for policy decisions decades later
Explanation
Choosing a normal base year is a step in construction, since an abnormal base year distorts every comparison. The other options relate to how a finished index is used or interpreted.
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