Question

Describe the uses of index number. What consideration are taken into account while selectin
the base year for the preparation of an index number. long answer ha​

Answer 1

Index numbers are used to measure changes in the value of money. A study of the rise or fall in the value of money is essential for determining the direction of production and employment to facilitate future payments and to know changes in the real income of different groups of people at different places and times. As pointed out by Crowther, “By using the technical device of an index number, it is thus possible to measure changes in different aspects of the value of money, each particular aspect being relevant to a different purpose.”

Answer 2

Selection should represent the real tastes, habits, and customs of the people. The selection must be easily recognizable. The selection should be tangible. The economic and social importance of various items should be considered.