The circular test is satisfied if an index allows comparison of period 2 with period 0 via period 1, i.e., P₀₁ × P₁₂ = P₀₂. Which index commonly fails this test? MCQ with Answer and Explanation

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The circular test is satisfied if an index allows comparison of period 2 with period 0 via period 1, i.e., P₀₁ × P₁₂ = P₀₂. Which index commonly fails this test?

A. Chain base index with fixed weights

B. Simple geometric mean index

C. Fisher's ideal index

D. Laspeyres index

Answer: Option D

Solution (By JKExamLibrary)

Laspeyres index uses fixed base-period weights, so P₀₁ × P₁₂ ≠ P₀₂ in general due to weight rigidity, failing the circular test; Fisher's index satisfies it under certain conditions.

This question belongs to: Accountancy and Statistics Statistics

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