Q.16. State the importance of Consumer Price Index.
Ans. Consumer Price Index is important due to the following reasons:
(i) It helps to determine the change in the living expenditure of a particular class of society.
(ii) It helps to estimate the payments of various kinds to the workers.
(iii) It acts as a measure of general inflation.
(iv) It helps in formulating the policies to control the price of the commodities.
Q.17. How are the commodity weights are determined in the WPI?
Ans. Commodities are broadly classified into three categories - primary articles, fuel, power, light and lubricants and manufactured products. The commodity weights in the WPI are determined by the weekly estimates of the commodity value of domestic production and imports (inclusive of import duty) during the base year.
Q.18. What are the uses of WPI?
Ans. The uses of WPI are:
(i) It helps to eliminate the effect of price change on national level aggregates such as national income, capital formation, etc.
(ii) It measures the rate of inflation in the economy.
(iii) It determines the situation of demand and supply in the economy. Increase in WPI indicates a situation of excess demand while decrease in WPI indicates a situation of deficient demand.
Q.19. State the difference between CPI and WPI.
Ans. CPI aims to determine the cost of living of a specified group of consumers in the society. WPI, on the other hand, tries to assess the situations of aggregate demand and supply in the economy.
Q.20. What is the use of index number in Sensex?
Ans. Sensex is the index showing changes in the Indian stock market. Sensex is a useful guide for investors in the stock market. If the Sensex is rising, it indicates that the market is doing well and investors can expect better earnings from companies.
Q.21. State the various uses of index numbers in economics.
Ans. The various uses of index numbers in economics are:
(i) Consumer Price Index (CPI) helps to formulate policies related to income, price, rent control, taxation and other general economic issues.
(ii) Wholesale Price Index (WPI) helps in eliminating the effect of price change on national level aggregates such as national income, capital formation, etc. it also measures the rate of inflation in the economy.
(iii) Index of industrial and agricultural production gives a quantitative figure about the change in production and performance in the respective sectors.
(iv) Sensex is a useful guide for investors in the stock market.