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CHAP 8 - Index Numbers

Chapter 8 discusses index numbers, highlighting their features such as being specialized averages that measure changes in related variables over time and are expressed in percentages. It also addresses the challenges in constructing consumer price indices, including difficulties in selecting base periods, representative commodities, and collecting accurate prices. Additionally, it introduces Sensex as a key benchmark for the Indian stock market, reflecting investor confidence and economic health.

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Varsha Manoj
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5 views

CHAP 8 - Index Numbers

Chapter 8 discusses index numbers, highlighting their features such as being specialized averages that measure changes in related variables over time and are expressed in percentages. It also addresses the challenges in constructing consumer price indices, including difficulties in selecting base periods, representative commodities, and collecting accurate prices. Additionally, it introduces Sensex as a key benchmark for the Indian stock market, reflecting investor confidence and economic health.

Uploaded by

Varsha Manoj
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Chapter 8 – Index Numbers

I. Answer the following questions in about twelve sentences (each question carries 4 marks)
1.Explain the features of index number?
The features of Index Numbers are
1.Index numbers are specialized averages : Index number is a type of average which shows in a
single figure the change in two or more series of different items which can be expressed in different
units.
2. Index numbers measures the net change in a group of related variables: Index numbers are
averages which are described in single numerical value. The group of variables may be prices of
set commodities, volume of production in different sectors etc.
3. Index numbers measure the effect of changes over period of time: Index numbers are most
widely used for measuring changes over a period of time. For example it can compare the
agricultural production, imports, exports wages etc.
4. Index numbers are expressed in percentages : The changes in magnitudes are expressed in
terms of percentages. This helps the comparison of two or more index numbers in different
situation.
5.Index numbers measure and permit comparison of the prices of certain goods. : Quantity index
numbers measure the changes in the physical volume of production, construction and employment.
2.Mention the difficulties in construction of consumer price index.
The difficulties in construction of consumer price index are
1.As index numbers are generally based on a sample, it is not possible to take into account each and
every item.
2. Index numbers are not free from error because at every stage of the construction of index
numbers. At every stage there is a change of error being introduced. Since index numbers includes
special type of averages like mean, median and mode, their relative limitations may lead to some
errors.
3. An index number is used to measure the change for a particular purpose only
4. Prices used to construct cost of living index may vary from shop to shop, place to place and from
consumer to consumer. Therefore the index numbers prepared on such prices cannot be used.
5.Index numbers include many commodities of unstable quality which will not be used at different
point of time.
3.Write a note on SENSEX.
Sensex is the short from of Bombay Stock Exchange Sensitive Index with 1978-79 as base.
The value of sensex is with reference to this period. It is the benchmark of index for the India stock
market. It consists of 30 stocks represented by 13 sectors of the economy.
If sensex rises, it indicates that the market is doing well and investors expect better earnings on their
investments. It indicates a growing confidence of investors in the basic health of the economy.
The sensitive index is a market capitalization of weighted index of sample of large well established and
financially sound companies. It is the oldest index in India.
This index is widely used to measure the performance of the Indian stock market. It is the pulse of
Indian capital market.

II. Answer the following in about twenty sentences (each question carries 6 marks)
1.Explain the uses of Index number.
The uses of index number are
1. Useful in policy making : They help in studying the various sectors. These trends are bases for
government policies. They are also useful in wage negotiations, formulation of income policy, price
policy, rent control etc.
2. Helpful in studying trends : Index numbers are most widely used for measuring changes over a
period of time. These time series enable us to study the general trends of the economy.
3. Useful to measure rate of inflation : The WPI is widely used to measure the rate of inflation. If
inflation is very high, money may lose its value. The study of index numbers will help us in taking
appropriate measures to tackle this problem.
4. The CPI are used in calculating the purchasing power of money and real wage.
5. The index of industrial production gives us a quantitative figure about the change in production in
the industrial sector.
6. Agricultural production index provides us a reference of the performance of agricultural sector.
7. Sensex is a useful guide for investors in the stock market. If the sensex is rising investors are
optimistic of the future performance of the economy and think it is an appropriate time of
investment.

2.Explain the difficulties in Construction of consumer price index number.


1. Difficulties in the Selection of the Base Period:
It is difficult to determine a truly normal year. Moreover, what may be the normal year today may
become an abnormal year after some period. Therefore, it is not advisable to have the same year
as the base period for a number of years.
2. Difficulties in the Selection of Commodities:
The selection of representative commodities for the index number is another difficulty. They have
to be selected from a wide range of commodities which the majority of people consume.. The
consumption pattern of consumers might change and thereby make the index number useless.
3. Difficulties in the Collection of Prices:
It is often not possible to get them from the same source or place. The problem of choice between
wholesale and retail prices arises. There are much variations in the retail prices. Therefore, index
numbers are based on wholesale prices.
4. Arbitrary Assigning of Weights
The problem is to give different weights to commodities. The selection of higher weight for one
commodity and a lower weight for another is simply arbitrary. There is no set rule
5. Difficulty of Selecting the Method of Averaging:
Another difficulty is to select an appropriate method of calculating averages. There are a number
of methods which can be used for this purpose. But all methods give different results from one
another. It is, therefore, difficult to decide which method to choose.
6. Difficulties Arising from Changes Overtime:
In the present times, changes in the nature of commodities are taking place continuously overtime
due to technological changes. As a result, new commodities are introduced and people start
consuming them in place of the old ones.
8. International Comparisons Not All Purpose:
An index number constructed for a particular purpose cannot be used for some other purpose. For
instance, a cost of living index number for industrial workers cannot be used to measure the cost
of living of agricultural workers. Thus there are no all purpose index numbers.
not Possible:
International price comparisons are not possible with index numbers. The commodities consumed
and included in the construction of an index number differ from country to country. For instance,
meat, eggs, cars, and electrical appliance are included in the price index of advanced countries
whereas they are not included in that of backward countries.
10. Not Applicable to an Individual:
An index number is not applicable to an individual belonging to a group for which it is constructed.
If an index number shows a rise in the price level, an individual may not be affected by it. This is
because an index number reflects averages.
3.Write a short note on CPI, WPI and IIP.

4.[3.] Explain the uses of consumer price index numbers.


Chapter 9 – Use of Statistical tools
I. Choose the correct answers (each question carries 1 mark).
1. Use of statistical tools helps to
a) Developing a project b) Determining a project
c) Marketing d) production
2. Developing a project helps to
a) Consumption
b) distribution
c) Collecting data
d) Analyzing data and suggesting improvement in a system
3. The first step in making a project
a) Analysis and interpretation b) Collection of data
c) identifying a problem d) organization of data.
4. Bibliography indicates
a) Primary sources b) Secondary sources
c) Oral resources d) T.V news
5. Developing a project helps to predict future prospects and suggestion relating to
a) Growth and Govt policies b) Past things
c) invisible crisis d) collection of data
II. Fill in the blanks (each question carries 1 mark).
1. The data can be presented with the help of ……………….
2. Survey helps to determine the method of collection of ……………….
3. The knowledge of various statistical tools is necessary for ……………….
4. The choice of target groups is very important while preparing the ……………….
5. Postal questionnaire must have a ………………. giving details about the purpose of
inquiry

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