CA Foundation · Quantitative Aptitude · Index Numbers
Which of the following is a recognised use of index numbers in business and economics?
Deflating nominal values such as income, wages or GDP to obtain real values is a recognised use of index numbers. Dividing a money figure by a price index and multiplying by 100 removes the effect of price changes and shows true purchasing power.
- AComputing the standard deviation of a frequency distribution
- BDeflating nominal values such as income or GDP to obtain real valuesCorrect
- CFinding the mode of a grouped series
- DTesting the significance of correlation between two variables
Explanation
Index numbers, especially price indices, are used as deflators to convert nominal income, wages or GDP into real terms. The other options are statistical techniques unrelated to index numbers.
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