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Question
State the test of adequacy of index number
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Solution
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 of an index number.
The two tests are as follows:
(i) Time Reversal Test
(ii) Factory Reversal Test
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| Commodities | Price | Quantity | ||
| Base Year | Current Year | Base Year | Current Year | |
| Wheat | 6 | 10 | 50 | 56 |
| Ghee | 2 | 2 | 100 | 120 |
| Firewood | 4 | 6 | 60 | 60 |
| Sugar | 10 | 12 | 30 | 24 |
| Cloth | 8 | 12 | 40 | 36 |
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