CHAPTER 12: INDEX NUMBERS Flashcards
A summary measure designed to show changes in the value of a variable or a group of related variables taken as a whole over a period of time, geographic location, or some other characteristic
Index Number
A simple relative is an example of…
an index number
A summary measure that combines the price changes for a group of items, using weights to give each item its appropriate importance
Price Index
Measures the combined effect of price changes in many goods and services purchased by households
Consumer Price Index (CPI)
A summary measure of relative changes over time in the quantities or volume of some measurable characteristic of a specific commodity or group of commodities
Quantity Index
What are the four measurable characteristics used in quantity index
- Production
- Sales
- Inventories
- Consumption
Monitors the changes in the quantity of a commodity produced or manufactured by the establishments
Volume of Production Index (VoPI)
The summary measures of relative changes over time in the value (price of commodity x quantity consumed) of a commodity or group of commodities
Value Index
Tracks the changes in total market capitalization of all the common stocks of companies listed at the Exchange with base value of 1000 points
All Shares Index of the Philippine Stock Exchange (PSE)
What are the two types of Aggregate Index Numbers?
- Unweighted Index Numbers
- Weighted Index Numbers
What are the two types of unweighted index numbers?
- Simple Aggregate Index
- Simple Average of Relatives Index
What are the five types of weighted index numbers?
- Weighted Aggregate Index
- Laspeyres’ Index
- Paasche’s Index
- Edgeworth-Marshall’s Index
- Fisher’s Ideal Index
An index number that can be viewed as the average of the percent relative series, where simple relatives with larger bases are given heavier weights
Simple Aggregate Index (SAI)
What are the advantages and disadvantages of the simple aggregate index?
Advantage:
- The method is very easy to apply
Disadvantages:
- It does NOT take into account the appropriate importance of the various commodities
- It gives greater importance to simple relatives with large bases
- The particular units in the magnitude like liters, kilos, and sacks can affect the value of the index
The weighted method of SAI where the items have different units of measurement
Weighted Aggregate Index (WAI)
The simple arithmetic mean of relatives and a more objective form of unweighted index numbers
Simple Average of Relatives Index
The simple average of relatives index still _______________ take into account the appropriate importance of the items since each simple relative is given equal importance
does not
What are the weights for the Price Index and Quantity Index for the Weighted Aggregate Index?
Price Index - the weights are the quantities purchased
Quantity Index - the weights are the prices
A type of weighted index number where it is based on the assumption that the amount purchased by a typical family does not change from the base year amount
Laspeyres’ Index or Base-Year Method (LI)
A type of weighted index number that uses quantities as weights and is convenient to use on a continuing basis since the weights remain fixed from one period to the next
Laspeyres’ Index or Base-Year Method (LI)
A type of weighted index number where it requires a new set of weights every year since the quantities for year n are used as weights
Paasche’s Index or Current Year Method (PI)
The weighted index number used far more often than the Paasche’s Index for measuring price changes and is larger than Paasche’s Index in general
Laspeyres’ Index or Base-Year Method (LI)
The ___________ tends toward an upward bias, while ____________ tends to underestimate the true changes in price
Laspeyres’ Index; Paasche’s Index
A type of weighted index number where it is a practical compromise between the use of a constant base year weights and year n by using the average of the two weights and
Edgeworth-Marshall’s Index (EMI)
A type of weighted index number that is another compromise between the use of a constant base year and current period weights and combines the information summarized by the Laspeyres’ Index and Paasche’s Index by averaging them using the geometric mean
Fisher’s Ideal Index (FII)
The Fisher’s Ideal Index uses which mathematical properties that make it ideal?
- Time Reversal Property
- Factor Reversal Property
What are needed to be considered in constructing index numbers?
- coverage or items to be included
- the base or reference period to be used
- the weights to be assigned to each item included
What are the factors considered in the selection of items to be included?
- Completeness
- Availability of Reliable Date on the Variables
- Quantity and Length of the Series
The factor considered in the selection of items to be included in which all important items and variables that are necessary to compute the index number should be included and can include those items that can show the typical changes as a whole
Completeness
The factor considered in the selection of items to be included in which the basic data on the variables must be reliable and should be representative of the true scenario so that the intended index number can be measured accurately
Availability of Reliable Data on the Variables
The factor considered in the selection of items to be included in which a lengthy series should be examined to demonstrate characteristics and variation over time
Quantity and Length of the Series
What are the factors in selecting of base period?
- Time Criterion
- Normal
- Comparability
- Availability of Data
The factor in selecting of base period in which the base period must be fairly recent enough that person making the comparison can remember what conditions were like during the base period
Time Criterion
The factor in selecting of base period in which the base period should in some sense be a period of normal activity for the series whose index is sought
Normal
The factor in selecting of base period in which one wishes to compare one index with another and so the indexes must have the same base period
Comparability
The factor in selecting of base period in which the base period should be a period for which accurate and complete data are available
Availability of Data
In availability of data, the best procedure is to use what type of years as base years?
census years
A measure of change in the average retail prices of goods and services commonly purchased by a particular group of people in a particular area
Consumer Price Index (CPI)
The CPI of the Philippines is computed by the…
Philippine Statistics Authority (PSA)
It is a survey in which the sample households are asked the commodities and services most commonly consumed and purchased and the type of outlets where these commodities are commonly purchased or availed of and is what the market basket is based on
Commodity and Outlet Survey (COS)
What are the two different income levels determined in the market basket?
- the upper 70%
- the lower 30%
What are the four different questionnaires used for the survey of retail prices?
1) Survey of retail prices of agricultural food items
2) Survey of retail prices of processed food items, beverages and tobacco
3) Survey of retail prices of nonfood items
4) Survey or costs of fuel, light, water, house rentals, and services
The CPI is computed using…
Laspeyres’ Method
Measures the real value of the peso in a given period relative to the peso value in the base period
Purchasing Power of Peso (PPP)
Is the minimum wage deflated by the current CPI
Real minimum wage rate
