Question

Define/what are the conditions for an Index number to satisfy TRT and FRT.

Answer 1

Time Reversal Test requires that the product of P₀₁ (price index number computed time backward) and P₁₀ (price index number computed time forward) should be equal to one [1]; ie P₀₁ × p₁₀ = 1.

Factor Reversal Test requires that the product of P₀₁ (price index number) and Q₀₁ (quantity index number) should be equal to the net changes occurring in between the current year and the base year (V₀₁)

ie. P₀₁ × Q₀₁   (Except the factor 100)