6.3 The uses of index numbers

Question 1

What number does the index base number have to be?

Answer 1

100

Question 2

How do you calculate index numbers?

Answer 2

change/base year * 100

then +/- answer to the index

Question 3

Why are index numbers useful?

Answer 3

Index numbers help to understand the significance of a change

Question 4

What’s the difference between index numbers and a chainbase?

Answer 4

Index numbers - change compared to base year

Chainbase - change compared to the previous year

Question 5

What are the issues with CPI?

Answer 5

As it is based on an imaginary typical family the CPI never really reflects anyone’s exact spending patterns

The inflation basket has to include many goods and services that not everyone buys, most people don’t smoke but cigarettes are included

Regular updates to the basket mean we are not always comparing like with like

No account is taken of the quality of the items included

Question 6

How do you calculate a weighted index?

Answer 6

Sum of weightings*index number / sum of weightings