Chapter MCQ Test 2 — Index Numbers
10 Questions • 12 min • Chapter MCQ
12:00
Question 1 of 10
The price index of a city is 100 in 2020 and 144 in 2025. Over these five years, prices on average rose by:
44%
144%
44 index points only, meaning nothing
5%
Explanation: 144 against a base of 100 means a 44% rise over the period.
Question 2 of 10
A worker's dearness allowance is linked to the CPI so that when prices rise his pay can rise too. This shows index numbers help:
Protect real income against inflation
Increase production
Lower wholesale prices
Measure rainfall
Explanation: Linking pay to the CPI keeps purchasing power roughly steady as prices rise.
Question 3 of 10
A drawback of the simple aggregative method is that it:
Ignores the relative importance (weight) of items
Cannot be calculated
Uses no prices
Always gives 100
Explanation: It treats all goods equally; weighted methods fix this by giving items their proper importance.
Question 4 of 10
If the IIP rises from 120 to 132, industrial output grew by:
10%
12%
132%
20%
Explanation: (132 − 120)/120 × 100 = 10% growth in output.
Question 5 of 10
To compare today's cost of a family's shopping with five years ago, the right index is the:
CPI
IIP
Export index
Rainfall index
Explanation: Household retail spending is tracked by the CPI (cost-of-living index).
Question 6 of 10
Choosing an abnormal year (e.g. a famine year) as the base year is wrong because the index would:
Give a misleading picture of normal change
Always be 100
Measure output
Become negative
Explanation: A base year should be normal; an abnormal base distorts every comparison made from it.
Question 7 of 10
Even if the overall price index rose 8%, an individual item's price may have:
Risen more, risen less, or even fallen
Risen exactly 8% always
Stayed at 100
Become an output figure
Explanation: An index is an average; individual prices can move quite differently from it.
Question 8 of 10
Both CPI and WPI measure prices, but they differ because the WPI covers:
Wholesale (bulk) prices and excludes services
Only retail food
Industrial output
Population
Explanation: WPI tracks bulk/wholesale prices of goods and leaves out services, unlike the retail CPI.
Question 9 of 10
Why does the RBI watch the CPI closely?
To monitor and control inflation
To count factories
To measure rainfall
To fix exam dates
Explanation: The CPI signals inflation, which the RBI aims to keep low and stable through policy.
Question 10 of 10
If prices double compared with the base year, the price index becomes:
200
100
50
2
Explanation: Doubling from a base of 100 gives an index of 200 (a 100% rise).