Free Index Numbers 03 Practice Test - 11th Grade - Commerce
Question 1
In case of high inflation, the purchasing power of money goes____.
Up
Down
Remains the same
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______.
Excess production
Low demand or low consumption
Decrease in money supply
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______.
Unfavourable demographics
Tight monetary policy
Increasing asset prices
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.
True, False
False, True
False, False
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
x and y are in the range of (0, 1)
x is in the range of (1,8) and y in (1,2)
x is the range of (8,27) and y in (2,3)
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
3y3−4y−5=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.
Wholesale
Producer
Retail
None of these
SOLUTION
Solution : C
CPI reflects retail inflation.
Question 7
Which of the following is not a part of wholesale price index?
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
135
134
133
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=∑WR∑W∗100=78.358∗100=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?
8.47
9.26
5.60
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
=[(59−54)54]∗100=9.26
Question 10
Which of the following is not a part of consumer price index?
SOLUTION
Solution : D
All the options are a part of CPI.