Question

Consider the following statements :
A. Cost of living at two different cities can be compared with volume index.
B. When the prices of rice are to be compared we use price index.
C. In Laspeyre's price index number weight is considered as price in current year.
D. Purchasing power of money can be assessed through consumer price index.
E. Fisher Index number is called ideal index number.
Choose the correct answer from the options given below :

• A. A and B only
• B. B, D and E only
• C. A, B and C only
• D. C only

Answer 1

The Correct Option is B

To determine the correct statements, we need to analyze each given statement based on definitions and properties of index numbers in economics:

• Statement A: "Cost of living at two different cities can be compared with volume index." This statement is false. Typically, the cost of living is compared using a price index, such as the consumer price index, not a volume index.
• Statement B: "When the prices of rice are to be compared we use price index." This statement is true. A price index is indeed used to measure changes in the price level of specific goods or a basket of goods over time.
• Statement C: "In Laspeyre's price index number weight is considered as price in current year." This statement is false. In Laspeyre's index, the weights are typically the quantities from a base year, not the current year.
• Statement D: "Purchasing power of money can be assessed through consumer price index." This statement is true. The consumer price index (CPI) reflects changes in the cost of acquiring a fixed basket of goods and services by an average consumer, thereby assessing the purchasing power of money.
• Statement E: "Fisher Index number is called ideal index number." This statement is true. The Fisher Index is known as an ideal index number because it is the geometric mean of the Laspeyre’s and Paasche’s indices, thereby reducing bias.

After analyzing each statement, the correct answer is option B, D and E only.