PRC-2 · Chapter 9 · Question 57 of 60
What is an inherent statistical flaw of utilizing the 'Simple Aggregate Method' to construct a price index?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) It ignores quantities completely and is heavily, artificially skewed by individual items with naturally large numerical unit prices.
Explanation
The simple aggregate method merely sums raw prices without logical volume weights. Thus, a high-priced item (like a diamond) will completely dominate the index over a highly consumed essential (like bread), making it economically inaccurate.
More Indices MCQs
- Q59When maintaining a long-term index series, what is the statistical process known as 'base shifting'?
- Q60What is the primary economic and statistical purpose of calculating the Consumer Price Index (CPI)?
- Q1Which of the following best describes the fundamental purpose of constructing economic index numbers?
- Q2In the construction of an index number, the period against which all other periods are being compared is technically referred to as the:
- Q3Which standard mathematical formula is used to calculate a 'Simple Price Relative' for a single commodity?