Index Numbers

Question 1

What is an index number?

Answer 1

• A simple, statistical technique to interpret, analyse, and compare large numbers.

Question 2

What number are index numbers primarily compared to?

Answer 2

• The ‘base year.’

Question 3

How do you calculate the index numbers without the base year data?

Answer 3

• Current year’s raw value divided by previous year’s raw value and this multiplied by the previous year’s index value.

Question 4

What is a weighted index?

Answer 4

• A weighted index is an ‘average’ index, made up of a combination of other indices.

Question 5

Two examples of weighted indexes?

Answer 5

• The HDI (Human Development Index), equally weighted between an index number representing GNI per capita, life expectancy, and number of years of schooling.

-Price Index, Unequally weighted between price changes of different types of goods/services, where the weights are set according to the % of income spent on those goods and services.

Question 6

How do you calculate the weighted price index?

Answer 6

• Price index of each product multiplied by weight.

-Sum of all weighted rice indices divided by the sum of weights for the average.

Question 7

Converting index numbers into raw data?

Answer 7

• Actual figure multiplied by figure in base time period multiplied by the index number divided by 1000.

Question 8

How to convert data more accurate from nominal terms to real terms?

Answer 8

-Real value = nominal variable/ new price index, multiplied by base price index.