Formula Of Index Number

Index Number Formula:

\[ Index\ Number = \frac{Current\ Value}{Base\ Value} \times 100 \]

Index Number:

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1. What Is The Index Number?

The Index Number is a statistical measure designed to show changes in a variable or group of variables over time, place, or other characteristics. It is commonly used in economics to track price changes, production levels, and other economic indicators.

2. How Does The Calculator Work?

The calculator uses the Index Number formula:

\[ Index\ Number = \frac{Current\ Value}{Base\ Value} \times 100 \]

Where:

\( Current\ Value \) — The value in the current period
\( Base\ Value \) — The value in the base period (reference point)
\( 100 \) — Scaling factor to express as percentage

Explanation: The formula compares the current value to a base value and expresses the result as a percentage, where 100 represents no change from the base period.

3. Importance Of Index Number Calculation

Details: Index numbers are crucial for measuring inflation (Consumer Price Index), tracking economic growth, comparing living standards, and making informed business and policy decisions based on quantitative changes over time.

4. Using The Calculator

Tips: Enter both current value and base value in the same units. Values must be positive numbers greater than zero. The result shows the percentage change relative to the base period.

5. Frequently Asked Questions (FAQ)

Q1: What does an index number of 120 mean?
A: An index number of 120 indicates that the current value is 20% higher than the base value (120 - 100 = 20% increase).

Q2: What is the base period in index numbers?
A: The base period is the reference point against which changes are measured. It is typically set to 100 to facilitate comparison.

Q3: What are common types of index numbers?
A: Common types include Price Index (CPI, PPI), Quantity Index, Value Index, and Composite Index for multiple variables.

Q4: How is index number different from percentage change?
A: While both measure change, index numbers provide a standardized reference point (base=100) for comparing multiple periods or items consistently.

Q5: What are the limitations of simple index numbers?
A: Simple index numbers don't account for quality changes, substitution effects, or weighting of different components in composite indices.