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## Tests of Consistency of Index Number

Several formulae have been suggested for constructing index numbers and the problem is that of selecting the most appropriate one in a given situation. The different tests are the unit test, time reversal test, factor reversal test, and circular test. This test states that the formula for constructing an index number should be independent of the units in which prices and quantities are expressed. All methods, except simple aggregative method, satisfy this test. Except for unweighted aggregative index number, all other indices satisfy this test. Time Reversal Test:. ## Tests of Adequacy - Index Numbers, Business Mathematics and Statistics B Com Notes | EduRev

Test of adequacy for an Index Number. Index numbers are studied to know the relative changes in price and quantity for any two years compared. There are two tests which are used to test the adequacy for an index number. The two tests are as follows,. The criterion for a good index number is to satisfy the above two tests. It is an important test for testing the consistency of a good index number. This test maintains time consistency by working both forward and backward with respect to time here time refers to base year and current year.

Index number was first constructed in:. Index number is specialised average designed to measure the change in a group of related variables over a period of time. An index number calculated with a single variable is called univariate index. When an index number is constructed from a group of variables is considered a composite index. Most widely used weighted index is:. Tests of adequacy of Index numbers. coniwasghana.org test. coniwasghana.org reversal test. coniwasghana.org reversal test. coniwasghana.orgar test. Quantitative Aptitude & Business Statistics: Index.

## Tests for Adequacy of Index Number

There are certain tests which are put to verify the consistency, or adequacy of an index number formula from different points of view. The most popular among these are the following tests:. At the outset, it should be noted that it is neither possible nor necessary for an index-number formula to satisfy all the tests mentioned above.

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### Tests of Consistency of Index Number

The new index numbers, which were introduced in Chapter 3, were designed not only to avoid the one-sidedness of the Laspeyres and Paasche measures of volume and price change, but also to meet the requirements of multiplicative as well as additive analysis of value changes of commodity aggregates into a volume and a price component. Having been designed with these objectives in mind, these index numbers have a number of properties which make them particularly suitable measures of volume and price change from an analytical point of view. In this chapter we aim to find out what these properties are, the extent to which they are shared by other index numbers and also whether by any chance the other index numbers have any useful properties which the new index numbers do not have. The method by which we establish whether or not a given type of index number possesses certain properties is the time-honoured one of applying appropriate tests to it. Unable to display preview. Download preview PDF. Skip to main content.

Time Reversal Test Prof. Irving Fisher has made a careful study of the various proposals for computing index numbers and has suggested various tests to be applied to any formula to indicate whether or not it is satisfactory. The two most important of these he calls the time reversal test and the factor reversal test. Time reversal test is a test to determine whether a given method will work both ways in time, forward and backward. If the product is not unity, there is said to be a time bias in the method. The test is not satisfied by Laspeyres method and the Paasche method as can be seen below: When Laspeyres method is used and the test is not satisfied. When Paasche method is used and the test is not satisfied. Index numbers are devices which indicate by its variations the changes in the magnitude in a group Of these Time Reversal Test, Factor Reversal Test And.

#### 3 replies on “Tests for Adequacy of Index Number”

Factor Reversal Test Another test suggested by Fisher is known as factor reversal test. It holds that the product of a price index and the quantity index should be equal to the corresponding value index. If from one year to the next, both price and quantity should double, the price relative would be , the quantity relative , and the value relative The total value in the second year would be four times the value in the first year. In other words, if p1 and p0 represent price and q1 and q0 the quantities in the current year and the base year, respectively, and if p01 represents the change in price in the current year and Q01 the change in quantity in the current year, then If the product is not equal to the value ratio, there is, with reference to this test, an error in one or both of the index numbers.

However the problem still remains of selecting an appropriate method for the construction of an index number in a given situation. Беккер остановился перед зеркалом и тяжело вздохнул. Обычно лучистые и ясные, сейчас его глаза казались усталыми, тусклыми. Сколько я уже тут кручусь.

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## Angela S.

Except for unweighted aggregative index number, all other indices satisfy this test​. Time Reversal Test: This test guides whether the method.

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