Question

what do you mean by Time Reversal Test and factor reversal test for index numbers? Explain wth suitable example that Laspeyers and Paasche's index numbers do not satisfy these tests and that Fischer's ideal index does satisfy these terms
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Answer 1

Answer:

Tests for Adequacy of Index Number ... Fisher, the formula for calculating an index number should be such that it ... Thus Fisher's method satisfies the time reversal test.

Answer 2

Answer:

Time Reversal Test: (TRT) : This test requires that the index number computed backwards should be the reciprocal of the index number computed forward, except the factor 100. i.e. P01 =  1 P 10 1P10 OR P01 × P10 = 1 (Except the factor 100) Factor Reversal Test:- This test requires that the product of the Price Index number and the Quantity Index number should be equal to the net change in the value taking place between two periods, except the factor 100. i.e. P01× Q01 =  ∑ P 1 q 1 ∑ p 0 q 0 ∑P1q1∑p0q0 = V01(Except the factor 100).