Index Numbers

Question 1

Requirements for a suitable base year

Answer 1

1. Typical year (prices not especially high or low)

2. Sufficiently recent

Question 2

Fixed based index numbers

Answer 2

Have the same base for several years

Question 3

Chained based index numbers

Answer 3

Express each year as a percentage of the value of the previous year (often of more interest)

Question 4

How to express a chain based index as a fixed based index

Answer 4

1. Divide current index by 100
2. Multiply by the previous index
   N.B. first two index numbers don’t change

Question 5

Weighted average index

Answer 5

SUM(wx)/SUM(w)

Question 6

Price index

Answer 6

P1/P0*100

Question 7

Relative price index

Answer 7

SUM(w(P1/P0))/SUM(w)100

Question 8

Aggregate price index

Answer 8

SUM(wP1)/SUM(wP0)*100

Question 9

Do base weighted indices exaggerate inflation?

Answer 9

Yes

Question 10

CPI

Answer 10

Internationally comparable measure of inflation, covers a broader sample of the population than RPI

Question 11

RPI

Answer 11

Used to index pensions and benefits etc. More common to the UK. Representative in terms fo geographical location, type/size of shop & timing of the month

Question 12

How to calculate prices at a constant base price

Answer 12

1. Multiply current price by RPI @ base

2. Divide by current RPI