Index Numbers

Question 1

What is an index number?

Answer 1

A percentage without the sign that shows the rate of change of price over time

Question 2

What is the formula for calculating index numbers?

Answer 2

Index number = (price/base year price) x 100

Question 3

What is the RPI?

Answer 3

1. Retail Price Index
2. Shows rate of change of everyday prices (e.g. mortgage, food, heating)
3. Used to set interest rate for student loans

Question 4

What is the CPI?

Answer 4

1. Consumer Price Index
2. Shows rate of change of everyday prices EXCLUDING mortgage
3. State benefits and pensions are updated annually in line with this

Question 5

Finish the sentence:

“The RPI and CPI are both…”

Answer 5

Chain base index numbers

Question 6

What is the GDP?

Answer 6

1. Gross Domestic Product

2. Shows value of good and services a country produces within a given period of time.

Question 7

How do we know if an economy is in a recession?

Answer 7

If the GDP falls in 2 or more successive quarters

Question 8

Why is the CPI weighted? (2)

Answer 8

1. To show importance of different items in the average shopping basket
2. Weightings change every year to reflect changes in consumer spending

Question 9

Finish the sentence:

“Inflation 0.8% or CPI is 0.008 means…”

Answer 9

Prices have risen by 8%

Question 10

How we calculate a weighted index number?

Answer 10

Weighted index number = (current weighted mean price/ base year weighted mean price) x 100

Question 11

Finish the sentence:

“Chain base index numbers compare…”

Answer 11

Prices from a given period with PREVIOUS period

Question 12

How do we calculate chain base index numbers?

Answer 12

Chain base index number = (price/last period’s price) x 100