CA Foundation · Quantitative Aptitude · Index Numbers
Which of the following is a recognised limitation of index numbers?
A recognised limitation is that index numbers are approximate measures. They rely on a sample of items, and the choice of base year, items and weighting method influences the result, so they are only relative indicators, not exact values.
- AThey can never be compared across two years
- BThey are only calculable for a single commodity
- CThey are approximate measures, as they are based on a sample of items and the choice of base and weights affects the resultCorrect
- DThey cannot be used to deflate money values
Explanation
Index numbers are based on samples of items, so they are only approximate, and results depend on the choice of base year, items and weights. The other statements are false, as index numbers do compare years, cover groups of items and are used for deflating.
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