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Circular Test is satisfied by
- a)Laspeyre Index number.
- b)Paasche index number.
- c)The simple geometric mean of price relatives and the weighted aggregative with fixed weights.
- d)None of these.
Correct answer is option 'C'. Can you explain this answer?
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Circular Test is satisfied bya)Laspeyre Index number.b)Paasche index n...
Circular Test in Index Numbers
The Circular Test is a criterion used to assess the consistency and reliability of index numbers. It ensures that the index number remains consistent when the base year is changed or when the time period is shifted.
Key Index Numbers
- **Laspeyres Index**: This index uses base year quantities as weights, which can lead to bias over time as it does not account for changes in consumption patterns.
- **Paasche Index**: This index uses current year quantities as weights, which can also produce misleading results if there are significant changes in prices.
Why Option C is Correct
- **Simple Geometric Mean of Price Relatives**: This approach considers the price relatives (price of the current period relative to the base period) and uses a geometric mean for averaging. It provides a balanced view of price changes over time.
- **Weighted Aggregative with Fixed Weights**: This method uses fixed weights from the base period to calculate the index. It allows for the reliable measurement of price changes without the distortion that might arise from changing weights.
How Circular Test is Satisfied
- Both these methods (geometric mean and fixed weight aggregation) uphold the Circular Test because:
- They yield consistent index numbers even when the base year or time periods are altered.
- They maintain the proportionality of the price changes, ensuring that the overall index reflects accurate price movements over time.
In summary, option C satisfies the Circular Test due to its inherent stability and consistency when analyzing price changes, making it a reliable choice for constructing index numbers.
The Circular Test is a criterion used to assess the consistency and reliability of index numbers. It ensures that the index number remains consistent when the base year is changed or when the time period is shifted.
Key Index Numbers
- **Laspeyres Index**: This index uses base year quantities as weights, which can lead to bias over time as it does not account for changes in consumption patterns.
- **Paasche Index**: This index uses current year quantities as weights, which can also produce misleading results if there are significant changes in prices.
Why Option C is Correct
- **Simple Geometric Mean of Price Relatives**: This approach considers the price relatives (price of the current period relative to the base period) and uses a geometric mean for averaging. It provides a balanced view of price changes over time.
- **Weighted Aggregative with Fixed Weights**: This method uses fixed weights from the base period to calculate the index. It allows for the reliable measurement of price changes without the distortion that might arise from changing weights.
How Circular Test is Satisfied
- Both these methods (geometric mean and fixed weight aggregation) uphold the Circular Test because:
- They yield consistent index numbers even when the base year or time periods are altered.
- They maintain the proportionality of the price changes, ensuring that the overall index reflects accurate price movements over time.
In summary, option C satisfies the Circular Test due to its inherent stability and consistency when analyzing price changes, making it a reliable choice for constructing index numbers.
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Circular Test is satisfied bya)Laspeyre Index number.b)Paasche index number.c)The simple geometric mean of price relatives and the weighted aggregative with fixed weights.d)None of these.Correct answer is option 'C'. Can you explain this answer?
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Circular Test is satisfied bya)Laspeyre Index number.b)Paasche index number.c)The simple geometric mean of price relatives and the weighted aggregative with fixed weights.d)None of these.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 Circular Test is satisfied bya)Laspeyre Index number.b)Paasche index number.c)The simple geometric mean of price relatives and the weighted aggregative with fixed weights.d)None of these.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 Circular Test is satisfied bya)Laspeyre Index number.b)Paasche index number.c)The simple geometric mean of price relatives and the weighted aggregative with fixed weights.d)None of these.Correct answer is option 'C'. Can you explain this answer?.
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