Index number is an economic barometer. (State True or False)
Answers
Answer: True
Explanation: The value of money rises or falls over a period. It does not remain constant and is inversely linked to the changes in the price level. In simple terms every rise in the price brings a fall in the value of money and vice versa. This means that the value of money change with every change in price level over a period of time. These changes in the price level can be arrived through a statistical device which is called as index number.
The index number are referred as economic barometer or indicators as they help us in presenting a true picture of the economic changes in the society.It is a method of deriving to the changes in a variable or a set of variables with regard to location,time and other features.It is a method of measuring the level of particular phenomena when compared with a particular period known as base period.This base period can be in the form of a week, month, year or set of years.
It helps in setting up industrial units,wages and even dearness allowance by reflecting the true economic condition of the society. It is used as a decision making tool.
There are three types of indices:
Price index
Quantity index
Value index