What is index number? Mention any three advantages of index number.
Answers
Answer:
An index number is the measure of change in a variable (or group of variables) over time. ... Index numbers are one of the most used statistical tools in economics. Index numbers are not directly measurable, but represent general, relative changes. They are typically expressed as percents.
- Index number helps to know the inflation rate by measuring price level and value of money between two periods.
- It helps Central Bank in deciding credit policy.
- Helps in adjustment in salaries and allowances: Index number helps to determine wages and allowance of employees.
An index number is an economic data figure reflecting price or quantity compared with a standard or base value. The base usually equals 100 and the index number is usually expressed as 100 times the ratio to the base value.
ADVANTAGES
a) They measure changes in one variable or in a group of variables.
(b) They are useful in making comparisons with respect to different places or different periods of time.
(c) They are helpful in simplifying the complex facts.
(d) They are helpful in forecasting about the future.
(e) They are very useful in academic as well as practical research.