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Circular Test is not meet by:
- a)The simple Geometric mean of price relatives.
- b)The weighted aggregative with fixed weights.
- c)Laspeyre or Paasche or the fisher Ideal Index.
- d)None of these.
Correct answer is option 'C'. Can you explain this answer?
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Circular Test is not meet by:a)The simple Geometric mean of price rela...
The Circular Test is a fundamental property that an ideal index number should satisfy. Let's discuss why the Laspeyre, Paasche, or Fisher Ideal Index does not meet the Circular Test:
- The Circular Test:
The Circular Test states that if we use an index number to convert the prices of one period into the prices of another period and then back again, we should end up with the original set of prices. This test ensures that the index number is consistent and does not introduce any bias in measuring price changes.
- Laspeyre or Paasche Index:
Both the Laspeyre and Paasche Index numbers do not meet the Circular Test because they use fixed base year weights. When prices change, these fixed weights can introduce bias into the index calculation. As a result, when we convert prices from one period to another and then back again, we may not end up with the original set of prices.
- Fisher Ideal Index:
The Fisher Ideal Index is a more advanced index that attempts to address the issues of fixed weights in the Laspeyre and Paasche Index numbers. However, even the Fisher Ideal Index may not always meet the Circular Test perfectly due to practical limitations and assumptions made in its calculation.
In conclusion, while the simple Geometric mean of price relatives and weighted aggregative with fixed weights may meet the Circular Test, the Laspeyre, Paasche, and Fisher Ideal Index numbers may not always satisfy this fundamental property due to the nature of their calculations and assumptions.
- The Circular Test:
The Circular Test states that if we use an index number to convert the prices of one period into the prices of another period and then back again, we should end up with the original set of prices. This test ensures that the index number is consistent and does not introduce any bias in measuring price changes.
- Laspeyre or Paasche Index:
Both the Laspeyre and Paasche Index numbers do not meet the Circular Test because they use fixed base year weights. When prices change, these fixed weights can introduce bias into the index calculation. As a result, when we convert prices from one period to another and then back again, we may not end up with the original set of prices.
- Fisher Ideal Index:
The Fisher Ideal Index is a more advanced index that attempts to address the issues of fixed weights in the Laspeyre and Paasche Index numbers. However, even the Fisher Ideal Index may not always meet the Circular Test perfectly due to practical limitations and assumptions made in its calculation.
In conclusion, while the simple Geometric mean of price relatives and weighted aggregative with fixed weights may meet the Circular Test, the Laspeyre, Paasche, and Fisher Ideal Index numbers may not always satisfy this fundamental property due to the nature of their calculations and assumptions.
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Circular Test is not meet by:a)The simple Geometric mean of price rela...
Circular test is not met by any of the index numbers
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Circular Test is not meet by:a)The simple Geometric mean of price relatives.b)The weighted aggregative with fixed weights.c)Laspeyre or Paasche or the fisher Ideal Index.d)None of these.Correct answer is option 'C'. Can you explain this answer?
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Solutions for Circular Test is not meet by:a)The simple Geometric mean of price relatives.b)The weighted aggregative with fixed weights.c)Laspeyre or Paasche or the fisher Ideal Index.d)None of these.Correct answer is option 'C'. Can you explain this answer? in English & in Hindi are available as part of our courses for CA Foundation.
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