Question 1

What is the base year fixed for the Index of Industrial Production (IIP) since April 2017?

Accepted Answer

2011-12 — The base year for the Index of Industrial Production (IIP) was fixed at 2011-12 = 100 starting from April 2017 to reflect recent economic conditions and changes in manufacturing items.

Question 2

The formula for the Index of Industrial Production (IIP) is given by $$\mathrm{IIP}_{01} = \frac{\sum_{i=1}^{n} q_{1i} W_i}{\sum_{i=1}^{n} W_i} 	imes 100$$. What does $q_{1i}$ represent in this formula?

Accepted Answer

Quantity relative of item i in year 1 with base year 0 — In the IIP formula, $q_{1i}$ denotes the quantity relative of the ith good in the current year (year 1) compared to the base year (year 0). It measures the change in quantity produced.

Question 3

Which of the following sectors has the highest weight in the Index of Industrial Production (IIP) according to the 2016-17 data?

Accepted Answer

Manufacturing — Manufacturing has the highest weight of 77.6% in the IIP, reflecting its dominant role in industrial production compared to Mining (14.4%) and Electricity (8.0%).

Question 4

The Eight Core Industries contribute what percentage weight in the Index of Industrial Production (IIP)?

Accepted Answer

40.27% — The Eight Core Industries, including coal, crude oil, natural gas, refinery products, fertilisers, steel, cement, and electricity, have a combined weight of 40.27% in the IIP.

Question 5

Which of the following is NOT a use-based group in the Index of Industrial Production (IIP)?

Accepted Answer

Agricultural Goods — The use-based groups in IIP include Primary Goods, Capital Goods, Intermediate Goods, Infrastructure/Construction Goods, Consumer Durables, and Consumer Non-durables. Agricultural Goods is not a use-based group in IIP.

Question 6

Sensex is the short form of which of the following?

Accepted Answer

Bombay Stock Exchange Sensitive Index — Sensex stands for Bombay Stock Exchange Sensitive Index, which is a benchmark index of 30 leading stocks representing 13 sectors of the Indian economy.

Question 7

Which base year is used for the Sensex?

Accepted Answer

1978-79 — The base year for the Sensex is 1978-79, and the index value is calculated with reference to this period.

Question 8

Why is it important to select a normal base year for constructing an index number?

Accepted Answer

A normal base year is important to avoid distortion in index numbers caused by extreme values or unusual economic conditions. For example, selecting a year with abnormal inflation or recession would not provide a meaningful comparison for price or quantity changes. — The base year should be as normal as possible to ensure that the index reflects typical economic conditions. Choosing a year with extreme values can lead to misleading results when comparing changes over time.

Question 9

Explain why different Consumer Price Indices (CPI) are necessary for different categories of consumers.

Accepted Answer

Different categories of consumers have different consumption patterns and priorities. For example, the poor agricultural labourers may not be affected much by petrol price changes, whereas urban workers may be. Hence, separate CPIs ensure that the index accurately reflects the cost of living changes for each group. — Since consumer groups vary in their expenditure on various items, a single CPI cannot represent all groups fairly. Different CPIs help policymakers understand inflation impacts on diverse populations and design targeted policies.

Question 10

Calculate the weekly inflation rate if the Wholesale Price Index (WPI) was 150 in week $t-1$ and 153 in week $t$.

Accepted Answer

2% — Given: WPI at week t-1 = 150, WPI at week t = 153
Find: Weekly inflation rate
Formula: Weekly inflation rate = \frac{X_t - X_{t-1}}{X_{t-1}} 	imes 100
Solution:
Step 1: Substitute values: \frac{153 - 150}{150} 	imes 100
Step 2: Calculate numerator: 3
Step 3: Calculate rate: \frac{3}{150} 	imes 100 = 2%
Answer: 2%
Note: Students often forget to multiply by 100 to convert to percentage.

Question 11

If the Consumer Price Index (CPI) with base year 1982=100 is 526 in January 2005, what is the purchasing power of one rupee in January 2005 compared to 1982?

Accepted Answer

Rs 0.19 — Given: CPI in 1982 = 100, CPI in 2005 = 526
Find: Purchasing power of Rs 1 in 2005 relative to 1982
Formula: Purchasing power = \frac{100}{CPI_{current}} = \frac{100}{526}
Solution:
Step 1: Substitute values: \frac{100}{526}
Step 2: Calculate: 0.19
Answer: Rs 0.19
Note: Purchasing power decreases as CPI increases.

Question 12

Calculate the real wage of a consumer whose money wage is Rs 10,000 and the CPI (1982=100) is 526.

Accepted Answer

Rs 1,901 — Given: Money wage = Rs 10,000, CPI = 526 (base 1982=100)
Find: Real wage
Formula: Real wage = \frac{Money\ wage}{CPI} 	imes 100
Solution:
Step 1: Substitute values: \frac{10,000}{526} 	imes 100
Step 2: Calculate: 1901
Answer: Rs 1,901
Note: Real wage shows purchasing power adjusted for inflation.

Question 13

If a worker's salary in the base year was Rs 3,000 and the CPI increased from 100 to 526, what should be the worker's salary now to maintain the same standard of living?

Accepted Answer

Rs 15,780 — Given: Base year salary = Rs 3,000, CPI increased from 100 to 526
Find: Required salary to maintain standard of living
Formula: Required salary = Base salary × \frac{CPI_{current}}{CPI_{base}}
Solution:
Step 1: Substitute values: 3,000 × \frac{526}{100}
Step 2: Calculate: 3,000 × 5.26 = 15,780
Answer: Rs 15,780
Note: Salary must increase proportionally to CPI increase to maintain purchasing power.

Question 14

Which of the following is NOT an issue to consider when constructing an index number?

Accepted Answer

Popularity of the index among consumers — While purpose, item selection, and base year choice are critical in constructing an index number, the popularity of the index among consumers is not a technical issue affecting its construction.

Question 15

Assertion (A): The Laspeyre's index uses base year weights while Paasche's index uses current year weights.
Reason (R): The choice of formula depends on the nature of the question to be studied.

Choose the correct option:
A) Both A and R are true and R is the correct explanation of A
B) Both A and R are true but R is NOT the correct explanation of A
C) A is true but R is false
D) A is false but R is true

Accepted Answer

A) Both A and R are true and R is the correct explanation of A — Assertion is true because Laspeyre's index uses weights from the base year, and Paasche's index uses weights from the current year. Reason is true as the choice of formula depends on the question studied. Reason correctly explains Assertion.

Index Numbers

Index Numbers — Study Notes

1. INTRODUCTION

2. WHAT IS AN INDEX NUMBER

3. CONSTRUCTION OF AN INDEX NUMBER

Practice Questions — Index Numbers

All 8 Chapters in Statistics for Economics