Question

State with reasons whether you agree or disagree with the following statement:

It is not essential to decide the purpose of an index number while constructing it.

Options

• Agree

• Disagree

Answer 1

I disagree with the above statement.

Reason:

1. The first and most significant step in index number construction is determining their purpose.
2. The purpose of constructing the index number, its scope as well and which variable is intended to be measured should be clearly decided to achieve fruitful results.
3. For instance, gathering information on the retail prices of a given product will be useless if the goal of creating index numbers is to determine changes in the wholesale prices of that particular commodity.

As a result, while creating the index number, it is crucial to determine its purpose.