Question

The ratio of current year prices to the base year price multiplied by $100$ is called __________index number.
(A) Quantity
(B) Price
(C) Quality
(D) Cost of living

Answer 1

In this question, we have to find out the correct option from the given particulars.
We need to first know the definition of all four options then from them we need to consider the given question and choose the correct one which is appropriate.

Complete step-by-step solution:
We need to choose the correct option which is the ratio of current year prices to the base year price multiplied by $100$ is called.
(A)
Quantity index number is used to calculate the changes in the quantities of industrial or agricultural goods produced in a year with reference to the base year. In other words, these quantity indices are used to measure relative changes in quantities over a time period, which indicates the level of output and its progress over a period of time.
Mathematically,
Quantity index number = $\dfrac{{\sum {{P_0}{Q_1}} }}{{\sum {{P_0}{Q_0}} }} \times 100$
(B)
The ratio of current year price to base year price multiplied by $100$is called price relative.
Price relative implies the ratio of the current year prices to base year prices multiplied by 100.
Price index number is used to calculate the changes in the prices of goods produced in a year with reference to the prices in the base year. In other words, these price indices are used to measure relative changes in the prices of goods over a time period.
Algebraically,
Price relative = $\dfrac{{{P_1}}}{{{P_0}}} \times 100$
(C)
Quality Index is usually a multi-item measure that assesses key dimensions of operational and service quality. It might include metrics such as First Pass Yield, Defect rates, Delivery Performance, etc.
(D)
Cost of living and standard of living are two variables that are inversely proportional to each other. This implies that higher the cost of living, lower is the standard of living and vice-versa.

Therefore (B) is the correct option.

Note: Index number:
Index number is a statistical measure that is used to calculate the changes in variables, such as price and cost of living, with reference to different time periods. In the words of Spiegel “An index number is a statistical measure designed to show changes in a variable or group of related variables with reference to time, geographical location or other characteristics such as income, profession, etc.”
The year for which the index number is prepared is called the current year. On the other hand, the year against which the changes in the current year are measured is known as base year.
Index numbers are constructed for different purposes. On the basis of the purpose, index numbers are classified in three categories as price index, quantity index and special purpose index.