CA Foundation · Quantitative Aptitude · Index Numbers
Which one of the following is a problem in the construction of an index number, as opposed to a mere misuse of a finished index?
Choosing an abnormal base year, such as one of severe drought or famine, is a construction problem. The base year should be normal, otherwise every later comparison is distorted. The other options concern misapplying or comparing finished indices rather than building the index.
- AUsing a wholesale price index to judge a farmer's cost of living
- BChoosing a base year that was abnormal, such as a year of severe drought or famineCorrect
- CApplying a national index to a single village
- DComparing indices that have different base years without adjustment
Explanation
Selecting a base year is a step in constructing the index, and an abnormal year, such as one with famine, distorts all comparisons. The base year should be a normal one. The other options describe misuse or incorrect application of an already completed index.
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