What Are Time Reversal And Factor Reversal Tests? State Their Uses


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amber Jhon answered
Time reversal test states that if the time subscripts that are o and n of a price or a quantity index number formula be interchanged, then the resulting price or quantity index formula should be the reciprocal of the original formula. The time reversal test is denoted and defined as;

Pon  X  Pno = 1

Pon= sum of prices of current year/ sum of prices in base year

Pno= sum of prices in base year/ sum of prices in current year.

According to the factor reversal test if the factors i.e. Price and quantity in a price or quantity index formula be interchanged so that a quantity or price index number formula is obtained, then the product of these formulae should be the value index number.

Pon X  Qon= summation pnqn/ summation poqo.

These test are used to check that which method is best to calculate index number. These tests are used to check the accuracy of the index number obtained from different resources. They help to compare the values of index numbers.

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