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Each of the following statements is either True or False. Write your choice of the answer by writing F for false.
- a)Geometric mean is the most appropriate average to be used for constructing an index number.
- b)Weighted average of relatives and weighted aggregative methods render the same result.
- c)“Fisher’s Ideal Index Number is a compromise between two well known indices – not a right compromise, economically speaking”.
- d)“Like all statistical tools, index numbers must be used with great caution”.
Correct answer is option 'C'. Can you explain this answer?
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Each of the following statements is either True or False. Write your c...
Explanation:
Fishers Ideal Index Number is a compromise between two well known indices not a right compromise, economically speaking. This statement is true. Let us understand this statement in detail.
Fishers Ideal Index Number:
Fishers Ideal Index Number is a weighted geometric mean of the Laspeyres and Paasche indices. It was proposed by Irving Fisher in 1922. Fisher's idea was to combine the advantages of the Laspeyres and Paasche indices while avoiding their disadvantages.
Advantages and Disadvantages of Laspeyres and Paasche Indices:
The Laspeyres and Paasche indices are two commonly used methods for constructing index numbers. The Laspeyres index uses fixed weights from a base period to calculate the change in prices, while the Paasche index uses current weights.
Advantages of Laspeyres index:
- Easy to calculate
- Less data is required
- Bias in favour of consumers
Disadvantages of Laspeyres index:
- Overestimates the cost of living
- Ignores substitution effect
Advantages of Paasche index:
- Accounts for substitution effect
- Uses current weights
Disadvantages of Paasche index:
- Difficult to calculate
- More data is required
- Bias in favour of producers
Compromise between Laspeyres and Paasche Indices:
Fishers Ideal Index Number is a compromise between Laspeyres and Paasche indices. It uses the weighted geometric mean of the two indices to calculate the change in prices. The weights used in this index are the arithmetic average of the Laspeyres and Paasche weights. This index overcomes the disadvantages of both the Laspeyres and Paasche indices while retaining their advantages.
However, it is important to note that Fisher's Ideal Index Number is not a right compromise economically speaking. This is because the index assumes that consumers and producers have equal bargaining power, which is not always the case. Moreover, the index assumes that there is no substitution effect, which is not true in the real world.
Conclusion:
Therefore, it can be concluded that the statement "Fishers Ideal Index Number is a compromise between two well-known indices not a right compromise, economically speaking" is true. While the index overcomes the disadvantages of Laspeyres and Paasche indices, it has its own limitations and should be used with caution.
Fishers Ideal Index Number is a compromise between two well known indices not a right compromise, economically speaking. This statement is true. Let us understand this statement in detail.
Fishers Ideal Index Number:
Fishers Ideal Index Number is a weighted geometric mean of the Laspeyres and Paasche indices. It was proposed by Irving Fisher in 1922. Fisher's idea was to combine the advantages of the Laspeyres and Paasche indices while avoiding their disadvantages.
Advantages and Disadvantages of Laspeyres and Paasche Indices:
The Laspeyres and Paasche indices are two commonly used methods for constructing index numbers. The Laspeyres index uses fixed weights from a base period to calculate the change in prices, while the Paasche index uses current weights.
Advantages of Laspeyres index:
- Easy to calculate
- Less data is required
- Bias in favour of consumers
Disadvantages of Laspeyres index:
- Overestimates the cost of living
- Ignores substitution effect
Advantages of Paasche index:
- Accounts for substitution effect
- Uses current weights
Disadvantages of Paasche index:
- Difficult to calculate
- More data is required
- Bias in favour of producers
Compromise between Laspeyres and Paasche Indices:
Fishers Ideal Index Number is a compromise between Laspeyres and Paasche indices. It uses the weighted geometric mean of the two indices to calculate the change in prices. The weights used in this index are the arithmetic average of the Laspeyres and Paasche weights. This index overcomes the disadvantages of both the Laspeyres and Paasche indices while retaining their advantages.
However, it is important to note that Fisher's Ideal Index Number is not a right compromise economically speaking. This is because the index assumes that consumers and producers have equal bargaining power, which is not always the case. Moreover, the index assumes that there is no substitution effect, which is not true in the real world.
Conclusion:
Therefore, it can be concluded that the statement "Fishers Ideal Index Number is a compromise between two well-known indices not a right compromise, economically speaking" is true. While the index overcomes the disadvantages of Laspeyres and Paasche indices, it has its own limitations and should be used with caution.
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Each of the following statements is either True or False. Write your choice of the answer by writing F for false.a)Geometric mean is the most appropriate average to be used for constructing an index number.b)Weighted average of relatives and weighted aggregative methods render the same result.c)Fishers Ideal Index Number is a compromise between two well known indices not a right compromise, economically speaking.d)Like all statistical tools, index numbers must be used with great caution.Correct answer is option 'C'. Can you explain this answer?
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Each of the following statements is either True or False. Write your choice of the answer by writing F for false.a)Geometric mean is the most appropriate average to be used for constructing an index number.b)Weighted average of relatives and weighted aggregative methods render the same result.c)Fishers Ideal Index Number is a compromise between two well known indices not a right compromise, economically speaking.d)Like all statistical tools, index numbers must be used with great caution.Correct answer is option 'C'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Each of the following statements is either True or False. Write your choice of the answer by writing F for false.a)Geometric mean is the most appropriate average to be used for constructing an index number.b)Weighted average of relatives and weighted aggregative methods render the same result.c)Fishers Ideal Index Number is a compromise between two well known indices not a right compromise, economically speaking.d)Like all statistical tools, index numbers must be used with great caution.Correct answer is option 'C'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Each of the following statements is either True or False. Write your choice of the answer by writing F for false.a)Geometric mean is the most appropriate average to be used for constructing an index number.b)Weighted average of relatives and weighted aggregative methods render the same result.c)Fishers Ideal Index Number is a compromise between two well known indices not a right compromise, economically speaking.d)Like all statistical tools, index numbers must be used with great caution.Correct answer is option 'C'. Can you explain this answer?.
Each of the following statements is either True or False. Write your choice of the answer by writing F for false.a)Geometric mean is the most appropriate average to be used for constructing an index number.b)Weighted average of relatives and weighted aggregative methods render the same result.c)Fishers Ideal Index Number is a compromise between two well known indices not a right compromise, economically speaking.d)Like all statistical tools, index numbers must be used with great caution.Correct answer is option 'C'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Each of the following statements is either True or False. Write your choice of the answer by writing F for false.a)Geometric mean is the most appropriate average to be used for constructing an index number.b)Weighted average of relatives and weighted aggregative methods render the same result.c)Fishers Ideal Index Number is a compromise between two well known indices not a right compromise, economically speaking.d)Like all statistical tools, index numbers must be used with great caution.Correct answer is option 'C'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Each of the following statements is either True or False. Write your choice of the answer by writing F for false.a)Geometric mean is the most appropriate average to be used for constructing an index number.b)Weighted average of relatives and weighted aggregative methods render the same result.c)Fishers Ideal Index Number is a compromise between two well known indices not a right compromise, economically speaking.d)Like all statistical tools, index numbers must be used with great caution.Correct answer is option 'C'. Can you explain this answer?.
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