Free Index Numbers 03 Practice Test - 11th Grade - Commerce 

Question 1

In case of high inflation, the purchasing power of money goes____.

A.

Up

B.

Down

C.

Remains the same

D.

Cannot be determined

SOLUTION

Solution : B

The purchasing power of money goes down when there is high inflation as the prices of various commodities rise, we can purchase less and less amount in the same price.

Question 2

Deflation can be attributed to______.

A.

Excess production

B.

Low demand or low consumption

C.

Decrease in money supply

D.

Hypercompetition or little market concentration

SOLUTION

Solution : A, B, C, and D

All the above options can be the reasons for deflation.

Question 3

The reasons for deflation in Japan for almost 2 decades beginning early 1990s could be attributed to______.

A.

Unfavourable demographics

B.

Tight monetary policy

C.

Increasing asset prices

D.

All of the above

SOLUTION

Solution : A and B

Aging population and tight monetary policy are some of the reasons for deflation in Japan apart from falling asset prices during the given period.

Question 4

(I) Deflation is a decrease in the general price level of goods and services. It occurs when the inflation rate falls below 0%.

(II) Disinflation is the same phenomenon as deflation.

A.

True, False

B.

False, True

C.

False, False

D.

True, True

SOLUTION

Solution : A

Disinflation is not the same phenomenon as deflation. Disinflation is a decrease in the rate of inflation – a slowdown in the rate of increase of the general price level of goods and services in a nation's gross domestic product over time.

Question 5

Find the value of variables x and y for the following data using simple aggregative method provided the average prices of commodities have decreased by 25% over the given period. Also given is the relation between x and y defined by x=y3.

CommoditiesABCDEPrice in 2000 (Rs.)15105x23Price in 2006 (Rs.)9y3920

A.

x and y are in the range of (0, 1)

B.

x is in the range of (1,8) and y in (1,2)

C.

x is the range of (8,27) and y in (2,3)

D.

No such range exists for x and y

SOLUTION

Solution : B

x=y3 --------- (i)

CommoditiesABCDETotalPrice in 2000 (Rs.)15105x2353+xPrice in 2006 (Rs.)9y392041+y

(34)(53+x)=(41+y)159+3x=164+4y
3x - 4y = 5 ------(ii)
Putting the value of x from (i) into (ii), we get
3y34y5=0
Clearly y lies in the range of (1, 2).
Thus, x can lie in the range of (1, 8).

Question 6

Consumer price index reflects______ inflation.

A.

Wholesale

B.

Producer

C.

Retail

D.

None of these

SOLUTION

Solution : C

CPI reflects retail inflation.

Question 7

Which of the following is not a part of wholesale price index?

A. Rice
B. Hair-cutting
C. Fertilizers
D. IT services

SOLUTION

Solution : B and D

Services are not a part of WPI. It considers only goods.

Question 8

Compute a weighted index number of the following data using price relative method:

ItemPrice in 1997 (P0)Price in 2011 (P1)Quantity consumed in 1997Rice2324Cotton4514Sugar698Wheat10124Other Cereals558

A.

135

B.

134

C.

133

D.

132

SOLUTION

Solution : A

Look at the table below:

ItemPrice in 1997 (P0)Price in 2011 (P1)Quantity Price relative =R =Weightedconsumed in 1997 (W)(P1P0)Price relative = WRRice232432=1.51.5×24=36Cotton451454=1.251.25×14=17.5Sugar69896=1.51.5×8=12Wheat101241210=1.21.2×4=4.8Other Cereals55855=11×8=8Total5878.3
P01=WRW100=78.358100=135

Question 9

What is the rate of inflation for the year 2000 if the CPIs for the years 1999 and 2000 are 54 and 59 respectively?

A.

8.47

B.

9.26

C.

5.60

D.

4.49

SOLUTION

Solution : B

Given, CPI in 1999 = 54

CPI in 2000 = 59

Rate of inflation (%)=[(CPI in 2000 - CPI in 1999)CPI in 1999]100

=[(5954)54]100=9.26

Question 10

Which of the following is not a part of consumer price index?

A. Pan, tobacco and intoxicants
B. Personal care and effects
C. Transport and communication
D. None of the above

SOLUTION

Solution : D

All the options are a part of CPI.