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Fisher index number is based on
- a)The Arithmetic mean of Laspeyre and Paasche index numbers
- b)The Median of Laspeyre and Paasche index numbers.
- c)The Mode of Laspeyre nad Paasche index numbers.
- d)None of these.
Correct answer is option 'D'. Can you explain this answer?
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Fisher index number is based ona)The Arithmetic mean of Laspeyre and P...
Understanding Fisher Index Number
The Fisher index number is a widely used measure in economics for comparing price levels over time. It is unique because it takes a geometric mean of two important index numbers: the Laspeyres and Paasche index numbers.
Components of Fisher Index
- **Laspeyres Index**: This index measures price changes using a fixed basket of goods based on the quantities in the base period. It tends to overstate inflation because it does not account for changes in consumption patterns.
- **Paasche Index**: In contrast, the Paasche index uses current quantities, reflecting the most recent consumption patterns. This method may underestimate inflation as it does not utilize older consumption data.
Fisher's Formula
The Fisher index is defined mathematically as:
\[
Fisher \ Index = \sqrt{Laspeyres \ Index \times Paasche \ Index}
\]
This geometric mean effectively balances the strengths and weaknesses of both indices, making it a more accurate representation of price changes.
Why Option D is Correct
- The statement in option 'a' suggests that the Fisher index is simply the arithmetic mean of the Laspeyres and Paasche indices, which is incorrect. It is based on the geometric mean, not the arithmetic mean.
- Options 'b' and 'c' (median and mode) are also incorrect as they do not apply to the Fisher index's calculation or methodology.
Conclusion
Thus, the correct choice is option 'D', as Fisher index numbers are not based on the arithmetic mean, median, or mode of the Laspeyres and Paasche indices. Instead, they are founded on a geometric mean, ensuring a more precise measurement of price changes over time.
The Fisher index number is a widely used measure in economics for comparing price levels over time. It is unique because it takes a geometric mean of two important index numbers: the Laspeyres and Paasche index numbers.
Components of Fisher Index
- **Laspeyres Index**: This index measures price changes using a fixed basket of goods based on the quantities in the base period. It tends to overstate inflation because it does not account for changes in consumption patterns.
- **Paasche Index**: In contrast, the Paasche index uses current quantities, reflecting the most recent consumption patterns. This method may underestimate inflation as it does not utilize older consumption data.
Fisher's Formula
The Fisher index is defined mathematically as:
\[
Fisher \ Index = \sqrt{Laspeyres \ Index \times Paasche \ Index}
\]
This geometric mean effectively balances the strengths and weaknesses of both indices, making it a more accurate representation of price changes.
Why Option D is Correct
- The statement in option 'a' suggests that the Fisher index is simply the arithmetic mean of the Laspeyres and Paasche indices, which is incorrect. It is based on the geometric mean, not the arithmetic mean.
- Options 'b' and 'c' (median and mode) are also incorrect as they do not apply to the Fisher index's calculation or methodology.
Conclusion
Thus, the correct choice is option 'D', as Fisher index numbers are not based on the arithmetic mean, median, or mode of the Laspeyres and Paasche indices. Instead, they are founded on a geometric mean, ensuring a more precise measurement of price changes over time.
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Fisher index number is based ona)The Arithmetic mean of Laspeyre and Paasche index numbersb)The Median of Laspeyre and Paasche index numbers.c)The Mode of Laspeyre nad Paasche index numbers.d)None of these.Correct answer is option 'D'. Can you explain this answer?
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Fisher index number is based ona)The Arithmetic mean of Laspeyre and Paasche index numbersb)The Median of Laspeyre and Paasche index numbers.c)The Mode of Laspeyre nad Paasche index numbers.d)None of these.Correct answer is option 'D'. 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 Fisher index number is based ona)The Arithmetic mean of Laspeyre and Paasche index numbersb)The Median of Laspeyre and Paasche index numbers.c)The Mode of Laspeyre nad Paasche index numbers.d)None of these.Correct answer is option 'D'. 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 Fisher index number is based ona)The Arithmetic mean of Laspeyre and Paasche index numbersb)The Median of Laspeyre and Paasche index numbers.c)The Mode of Laspeyre nad Paasche index numbers.d)None of these.Correct answer is option 'D'. Can you explain this answer?.
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