Chapter 7: Index Numbers Flashcards
What do index numbers compare?
Price changes over time
Index numbers are used to compare the price change of an item with its base year price.
What is a simple index number?
Compares the price change of an item with its base year price
The index number for each year is that year’s price as a percentage of its base year price.
What is the index number for the base year?
100
This indicates the original amount and means 100%.
If the index number is greater than 100, what does it indicate?
The value has increased
Conversely, if the index number is less than 100, the value has decreased.
What does the Retail Price Index (RPI) measure?
Rate of change of prices of everyday goods
This includes items like mortgage, food, and heating.
How is RPI calculated?
Monthly by comparing prices to the same month of the previous year
This accounts for seasonal variations.
What is the Consumer Price Index (CPI)?
Official measure of inflation used by the UK Government
It is similar to RPI but does not include mortgage payments.
How are pensions and benefits in the UK adjusted annually?
In line with the CPI
CPI reflects the importance of different items in the average shopping basket.
What does Gross Domestic Product (GDP) represent?
Value of goods and services produced in a country in a given time
A fall in GDP for two or more successive quarters indicates a recession.
What are weighted index numbers?
Index numbers that take into account proportions
They reflect the importance of different items, similar to a weighted mean.
What is the formula for calculating weighted index numbers?
Weighted Index Number = ∑(index number × weight) / ∑weights
This formula considers the weightings of different items.
What are chain base index numbers used for?
Compares prices from each year with that of the previous year
This shows how values change from year to year.
What is the formula for calculating chain base index numbers?
Price Chain Base Index Number = (current year price / last year’s price) × 100
RPI and CPI are examples of chain base index numbers.
What do crude rates measure?
How many times a particular event occurs per 1000 of the population
This is often used for births, deaths, marriages, or unemployment.
What is the Crude Birth Rate?
Number of births per 1000 of the population
It helps in planning for future needs, such as schools.
What is the Crude Death Rate?
Number of deaths per 1000 of the population
It is calculated using the formula: Crude Rate = (number of births/deaths / total population) × 1000.
What are standard populations used for?
Represent the whole population
It is a hypothetical population of 1000 people, taking into account different age/gender/income distributions.
What is a standardised rate?
Allows comparison of the same age group in different populations
It uses the standard population for more realistic comparisons.
What is the formula for calculating a standardised rate?
Standardised Rate = (Crude Rate / 1000) × Standard Population
To find the standardised rate for the entire population, sum the rates for each group.
