Chapter 9 - index numbers

Question 1

fixed base

Answer 1

base year is selected and all subsequent changes are measured against this base

Question 2

chain base

Answer 2

changes calculated with respect to value of item in period immediately before

Question 3

index numbers purpose

Answer 3

used to measure change in monetary value of group of items over time - price indices eg CPI

can also be used to measure change in non monetary values of a group of items over time = quantity indices

Question 4

base weighted index

Answer 4

when working out change in price of basket of goods you can weight the price rises by the quantities purchased at the start of the period

Question 5

formula for base weighted price index

Answer 5

sum of weights using base year values x (p1 / p0) / sum of weights using base year

p1 = prices in current year
p0 = prices in base year

Question 6

what is current weighted price index

Answer 6

weight the price rises by quantities currently being purchased

Question 7

current weighted price index formula

Answer 7

same as weighted price index except w = weights using current year values

Question 8

difference between nominal and real

Answer 8

real accounts for inflation but nominal doesn’t