Index numbers

• What are index numbers commonly used for in economics?

  They are used for GDP data, house prices, productivity, exchange rates, and inflation.
• Why do economists prefer to use index numbers?

  They simplify complex data and allow for quick comparisons.
• How do index numbers help in analyzing data?

  They allow for easy comparisons to see if numbers are rising or falling.
• What is the significance of using index numbers for rates of change?

  They make it easier to calculate percentage changes in economic data.
• What is the process to convert raw numbers into index numbers?

  • Choose a base year (e.g., year one).
  • Base year has an index value of 100.
  • Use the formula:

  $\text{Index Number} =$$\left(\frac{\text{Raw Number}}{\text{Base Year Raw Number}}\right) \times 100$
• What is the index value of the base year?

  100
• Why do base years always have an index value of 100?

  Because the raw number in the base year divided by itself equals one, which multiplied by 100 is 100.
• How do you calculate the index number for year two if the raw number is 255.55.9 and the base year raw number is 249.35.9?

  By using the formula: $\left(\frac{255.55.9}{249.35.9}\right) \times 100$.
• What is the index number for year three if the raw number is 255.55.9 and the base year raw number is 249.35.9?

  By using the formula: $\left(\frac{255.55.9}{249.35.9}\right) \times 100$.
• How can index numbers help in understanding trends in house prices?

  • They simplify raw data into manageable numbers.
  • They allow for easy year-on-year comparisons.
  • They help in calculating percentage changes in prices.
• What is the formula to calculate percentage change using index numbers?

  It is the difference between two numbers divided by the original number, multiplied by 100.
• How do you calculate the percentage change in house prices for year two if the index number is 102.49?

  By taking the difference between 102.49 and 100, dividing by 100, and multiplying by 100.
• What is the percentage change in house prices between year two and year three if the index numbers are 102.49 and 104.65?

  By taking the difference between 104.65 and 102.49, dividing by 102.49, and multiplying by 100.
• What are the benefits of using index numbers in economics?

  • They simplify complex data.
  • They allow for easy comparisons.
  • They facilitate the calculation of percentage changes.
• What should you remember when working with index numbers?

  Keep it simple and practice to master the concept.