7. Index Numbers
Index numbers are essential statistical tools used to measure relative changes in a grouping of related variables, often focusing on price changes over time. The chapter discusses various index numbers, including the consumer price index (CPI), wholesale price index (WPI), and industrial production index (IIP), along with methods for their calculation and interpretation. Emphasis is placed on the importance of choosing the right base year and weights for accurate representation of economic trends.
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What we have learnt
- An index number is a statistical device for measuring relative change in a large number of items.
- There are several formulae for calculating an index number, and every formula needs to be interpreted carefully.
- The choice of formula largely depends on the question of interest and the specific context of measurement.
Key Concepts
- -- Index Number
- A statistical measure that represents the relative change in a variable or group of variables over time.
- -- Consumer Price Index (CPI)
- A measure that examines the weighted average of prices of a basket of consumer goods and services, used to assess changes in the cost of living.
- -- Wholesale Price Index (WPI)
- An index that measures changes in the price levels of wholesale goods and excludes things bought at a retail level.
- -- Laspeyre’s Index
- A method of calculating an index number that uses the quantities from the base period as weights.
- -- Paasche’s Index
- An index that uses the quantities from the current period as weights for its calculation.
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