Question 1

Which of the following options is NOT an example of a composite index?

Accepted Answer

A)  Retail Price Index 
B)  DAX share index (Frankfurt, Germany) 
C)  Index of US wheat prices 
D)  Japanese Industrial Output Index C

Question 2

A manufacturing firm in Beirut calculates the price indices of gas and electricity as 158 and 242. It uses more gas than electricity, so the weights are 5 and 3 respectively. Calculate the weighted average of relatives (1 decimal place).

Accepted Answer

A)  189.5 
B)  195.6 
C)  210.5 
D)  223.7 A

Question 3

Which of the following statements about calculating composite indices is NOT correct?

Accepted Answer

A)  The weighted average of relatives and weighted aggregate produce the same value 
B)  Neither method for calculation is preferred - but the method used in calculation should be reported 
C)  When comparing composite indices, the same method should be used 
D)  The weighted average of relatives method is less affected by extreme values than the weighted aggregate method A

Question 4

Which of these statements is NOT a limitation of a composite index?

Accepted Answer

A)  A composite index may help inform complex decision making, such as taxation policy 
B)  A composite index risks being misinterpreted by a layperson 
C)  A composite index is only really suitable for giving an overall impression of change 
D)  A composite index may become inaccurate if weightings change over time

Question 5

Which of the following statements is TRUE?

Accepted Answer

A)  Both the Laspeyres index and Paasche index over-estimate price increases 
B)  The Laspeyres index may be easier to calculate as it needs only base quantities 
C)  Weights used in the Paasche index calculation may be out-of-date 
D)  The Laspeyres index is not usually considered a 'pure' price index

Question 6

Calculate a Paasche price index for the following data (0 decimal places)

Accepted Answer

A)  112 
B)  113 
C)  114 
D)  115

Question 7

Which statement concerning the construction of a composite index is NOT true?

Accepted Answer

A)  Changing patterns or trends in consumption can cause problems in composie index construction 
B)  Technically, it does not matter which time period is used as a base - although a fairly recent data is preferred 
C)  Determining weights can be complex and may need a separate piece of work to do accurately 
D)  When collecting data for a composite index, quantities are normally easier to obtain than prices

Question 8

Which of the following options may NOT be a consideration when weighting components of a composite price index?

Accepted Answer

A)  Volume of sales for each component 
B)  Average expenditure on each component 
C)  The number of components to be indexed 
D)  The degree to which price for components varies

Question 9

A paint producer in Nigeria wishes to calculate the weighted aggregate for components of its paint. In the past 5 years the cost of the base paint (per 100 litres) has increased from NGN (Nigerian Naira) 38500 to NGN 40500 and the cost of coloured dyes from NGN 6200 to NGN 7400. Base paint and colour are used in a ratio of 100:1. Calculate the weighted aggregate (1 decimal place).

Accepted Answer

A)  103.8 
B)  104.7 
C)  105.2 
D)  106.8

Question 10

In a Laspeyres price index what value is used for the weights of components?

Accepted Answer

A)  Base time period prices 
B)  Base time period index values 
C)  Base time period prices squared 
D)  Base time period quantities

Exam 19: Composite Index Numbers