The Time Reversal Test is not satisfied to:a)Fisher Ideal Indexb)Marsh...
The Time Reversal Test is a criterion used to determine whether an index number method satisfies the time reversal property. This property states that if the direction of time is reversed, the index number should remain unchanged. In other words, the index number should be symmetric to time reversal.
The Time Reversal Test is not satisfied by the Laspeyre and Paasche Method. Let's understand why:
1. Laspeyre Method:
The Laspeyre Method is a fixed-weighted index where the quantities of goods remain constant over time, but the prices change. This method calculates the index by using the base period quantities and current period prices. Since the base period quantities are fixed, any reversal in time would affect the index calculation.
2. Paasche Method:
The Paasche Method is also a fixed-weighted index, but it uses the current period quantities and current period prices. Similar to the Laspeyre Method, any reversal in time would affect the index calculation because the current period quantities are used.
Explanation:
- The Laspeyre and Paasche Methods do not satisfy the Time Reversal Test because they are not symmetric to time reversal. If the direction of time is reversed, the index numbers obtained using these methods would change because the base period quantities or current period quantities are fixed.
- On the other hand, the Fisher Ideal Index and the Marshall Edgeworth Method do satisfy the Time Reversal Test.
- The Fisher Ideal Index is a geometric mean of the Laspeyre and Paasche indexes. It is calculated by taking the square root of the product of the Laspeyre and Paasche indexes. Since it is a combination of both methods, it satisfies the Time Reversal Test.
- The Marshall Edgeworth Method is a modified version of the Laspeyre and Paasche Methods. It uses weighted averages of the Laspeyre and Paasche indexes to calculate the index number. This method also satisfies the Time Reversal Test.
In conclusion, the Laspeyre and Paasche Methods do not satisfy the Time Reversal Test because they are not symmetric to time reversal. The Fisher Ideal Index and the Marshall Edgeworth Method, on the other hand, do satisfy the Time Reversal Test.
The Time Reversal Test is not satisfied to:a)Fisher Ideal Indexb)Marsh...
Laspeyre's and paasche's index numbers satisfy only unit test not any other tests. Hence option C will be the answer
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