1. What Is Index Number Formula?

The Index Number Formula is a statistical measure used to show changes in a variable relative to its value at a base period. It is commonly used in economics to track price changes, production levels, and other economic indicators over time.

2. How Does The Calculator Work?

The calculator uses the Index Number formula:

Where:

• \( Current \) — Current period value
• \( Base \) — Base period value
• \( Index \) — Resulting index number expressed as percentage

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

3. Importance Of Price Index Calculation

Details: Index numbers are crucial for measuring inflation, comparing economic performance across periods, adjusting salaries for cost of living, and making informed business and policy decisions.

4. Using The Calculator

Tips: Enter both current and base values as positive numbers. The base value represents the reference period, while the current value represents the period you want to compare against the base.

5. Frequently Asked Questions (FAQ)

Q1: What does an index number of 120 mean?
A: An index of 120 indicates that the current value is 20% higher than the base value, representing a 20% increase from the base period.

Q2: Why is the base period important?
A: The base period serves as the reference point (100%) against which all other periods are compared, providing consistency in measurement over time.

Q3: Can index numbers be used for quantities as well as prices?
A: Yes, index numbers can measure changes in quantities (quantity index), prices (price index), or values (value index) depending on the application.

Q4: What are some common types of index numbers?
A: Common examples include Consumer Price Index (CPI), Producer Price Index (PPI), GDP deflator, and stock market indices like S&P 500.

Q5: How often should base periods be updated?
A: Base periods are typically updated every 5-10 years to maintain relevance, as economic structures and consumption patterns change over time.