Go and a look through it.

1. TEST OF CONSISTENCY OF
INDEX NUMBERS
PRESENTED BY:
ANKIT AGRAWAL
16MBA(FM)025

2. TESTS TO CHECK CONSISTENCY OF
INDEX NUMBER
• Order reversal test
• Time reversal test
• Factor reversal test
• Circular test
• Unit test

3. ORDER REVERSAL TEST
• This test requires that a formula of Index
number should be such that the value of the
index number remains the same, even if, the
order of arrangement of the items is reversed,
or altered.
• This test is satisfied by all methods of index
number.

4. TIME REVERSAL TEST
This test requires that the formula of
index number should be such that it turns
the value of the index number to its
reciprocal when the time subscripts of the
formula are reversed and the product of
both results to unity.

5. • In order to satisfy this test index formula
must prove the following
equation: P01 x P10 = 1
• Except Laspeyre and Paasche all index
formula passes this test.

6. METHOD ORIGINAL FORM REVERSE FORM PRODUCT OF THE TWO
CHECK FOR TIME REVERSAL TEST

7. FACTOR REVERSAL TEST
This test proposes that a formula of index
number should be such that it permits the
interchange of the price and the quantity
factors without giving inconsistent result.

8. • For the Factor Reversal test, a formula of index
number should satisfy the following equation:
Price index × Quantity Index = Value Index
i.e. P01 x Q01 = ∑p1 q1/p0q0
• Only fisher formula of index number passes
this test.

9. METHOD ORIGINAL FORM REVERSED FORM PRODUCT OF THE TWO
CHECK FOR FACTOR REVERSAL TEST

10. CIRCULAR TEST
• This test requires that an index number
formula should be such that it works in a
circular fashion.
• This test is based on the shiftability of base
period.

11. • A formula to satisfy the test should comply
with the following equation:
Pab × Pbc × Pca = 1.
(for three periods a,b and c)
• This test is satisfied by only kelley’s method.

12. METHOD PO1 P12 P20 P01*P12*P20
CHECK FOR CIRCULR TEST

13. UNIT TEST
• This test requires that an index number
formula should be such that it does not affect
the value of the index number, even if, the
units of the price or quantities quoted are
altered.
• This test is satisfied by all the index formula.

14. THANK YOU