Chapter 2

Index Number

 

(A)Very short Question and Answer:

1.Explain the meaning of index number.


Ans: Index number are devices for measuring differences in the magnitude of a group of related variables.

2. Write any two features of the index number.

Ans: (a) Index numbers measure relative or percentage changes in the variable over time.

(b) Index number shows changes in terms of averages.

3. Name the consumer groups in India for which con- consumer price index is constructed.

Ans: (a) Industrial workers.

(b) Urban-non manual employees and

(c) Agricultural labourers.

4.What is the wholesale price index?

Ans: The wholesale price index measures the relative changes in the prices of commodities traded in the wholesale markets. 

5.  What is the index number of industrial production?

Ans:  Index number of industrial production is that index which measures the relative increase or decrease in the level of industrial production in a country in comparison to the level of production in the base year.

6. What is the base year?

Ans: Base year is the year with which prices of the current year are compared.

7. Write any two limitations of index number.

Ans: (a) There is no scientific technique of according weightage to different items included in the index number.

(b) Weighted to different items often has a blend of personal bias.

8. What are two broad categories of index number?

Ans. (a) Simple Index number.

(b) Weighted Index number.

9. What is Sensex?

Ans: Sensex is the Indian Stock Market's standard index. It is made up of 30 stocks that are leaders in their respective industries and represent 13 different economic sectors.

10. What is the alternative name of Sensex?

Ans: Bombay Stock Exchange.

11. Which price index is used in India to calculate inflation?

Ans: Wholesale price index.

12. Which price index measures change in retail prices?

Ans: Consumer price index.


(B) Short Question and Answer:

1. Mention the uses of index numbers.

Ans: The uses of index numbers are -

(i) Measurement of change in the price level : Index numbers can be used to know the impact of the change in the value of money of different sections of the society.

(ii) Knowledge of the change in standard of living: Index numbers help to ascertain the living standard of people.

(iii) Cost of living index number is a useful guide to the government and private enterprises to make necessary adjustments in salaries and allowances of the workers.

(iv) Price index numbers serve as a useful guide to the business community in planning.

(v) Index of exports and imports provides useful information regarding foreign trade.

2. Explain the types of index numbers.

Ans: The type of index numbers are as follows:

(a) Price index number: It measures the general changes in prices of goods. It compares the level of prices between two different time periods.

(b) Quantity index number: It measures changes in the level of output or physical volume of production in the economy.

(c) Value index number: The value of a commodity is the product of its price and quantity (PXQ). Value index number measures changes in the value of a variable in terms of rupee.

(d) Special purpose index number: They are constructed with some specific purposes, eg; labour productivity index number, share price index number etc.

3. List the features of index numbers.

Ans: The features of index numbers are-

(a) Index number is an average used to quantify relative changes in situations when absolute measurement are not possible. 

(b)The process of calculating index numbers varies from one variable to the next.

(c) It aids in comparing the levels of a phenomenon on a certain day to those on a previous date.

(d) It is a unique situation for averages, particularly for a weight average.

(e) The use of index numbers are universal.

4. State the importances of wholesale price index.

Ans: (a) Helpful in forecasting: Wholesale price indexes are helpful in forecasting the business conditions and demand and supply of the commodities in the economy. If wholesale price increases, it indicates a situation of excess demand over supply of goods.

(b) Determination of real changes in aggregates : The wholesale price indices enable us to find out the real changes in aggregates like national income, national expenditure.

(c) Determination of rate of inflation: Wholesale price indices is the indicator of the inflation in the economy.