Question

Explain Time Reversal Test and Factor Reversal Tests,

Answer 1

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 = \(\frac{1}{P_{10}}\) 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 = \(\frac{∑P_1q_1}{∑p_0q_0}\) = V₀₁(Except the factor 100).