CA Foundation · Quantitative Aptitude · Index Numbers
Which of the following is a recognised limitation of index numbers, as taught in the Index Numbers chapter?
Index numbers are built from a sample of representative commodities rather than all items, so they are only approximate indicators of the true change. They are not exact, and they do not need data on every commodity in the economy.
- AIndex numbers can never be used to compare two different years
- BIndex numbers are always exact measures with no sampling error
- CIndex numbers are based on samples of commodities, so they are only approximate indicators of the true changeCorrect
- DIndex numbers can be computed only when quantities are known for every commodity in the economy
Explanation
Index numbers are built from a selected sample of items, so they show only an approximate picture of the change in the variable. They do compare years, which is their purpose, so the first option is wrong. They are not exact, so the second option is wrong. A representative sample is used, not every commodity, so the last option is wrong.
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