Explain the importance of index number.
Answers
Index numbers are most important in economic status. An Index number defines the level of a variable relative to its level in a given period. Index numbers are also used to study the change in effects of factors which cannot be measured/ calculated directly.
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Importance of Index Numbers are as follows:
1. Formulation of Economic Policies: Index numbers help the Government in measuring the changes in various aspects such as prices, income, exports, imports and like; which ultimately act as a guide to formulate the economic policy.
2. Contribution in External Trade: It is very important to check the position of foreign trade which is being done with the help of index number indices applied for imports and exports. These indices helps to tell whether there is an increase or decrease in external trade.
3. Measurement of Changes in Value of Money: With the help of Index Numbers, one can measure the changes in money value which provides direction for production and employment. In fact, it helps to know about the change in real income of different people.
Learn more about Index Numbers:
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