1. What Are Index Numbers in Economics?

Index numbers are statistical measures designed to show changes in a variable or group of related variables over time, relative to a base period. They are widely used in economics to track inflation, production, prices, and other economic indicators.

2. How Does the Calculator Work?

The calculator uses the simple index number formula:

Where:

• \( Current \) — Current period value
• \( Base \) — Base period value
• \( 100 \) — Base index value

Explanation: The formula calculates the percentage change relative to the base period, where the base period is always set to 100.

3. Importance of Index Numbers

Details: Index numbers are crucial for measuring inflation (CPI), tracking economic growth, comparing economic performance across periods, and making informed policy decisions. They simplify complex economic data into easily interpretable figures.

4. Using the Calculator

Tips: Enter the current value and base value in the same units. Both values must be positive numbers. The result is a dimensionless index number where 100 represents the base period level.

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 period value.

Q2: Why is the base period set to 100?
A: Setting the base to 100 provides a clear reference point and makes percentage changes easy to interpret.

Q3: What are common types of economic indices?
A: Common indices include Consumer Price Index (CPI), Producer Price Index (PPI), GDP deflator, and stock market indices.

Q4: Can index numbers be used for international comparisons?
A: Yes, but careful consideration of base periods and methodology is needed for valid cross-country comparisons.

Q5: What are the limitations of simple index numbers?
A: Simple indices don't account for quality changes, new products, or changes in consumption patterns over time.