Index Numbers

INDEX NUMBERS

Definition: Index Numbers are statistical devices designed to measure the relative changes in the level of a specific phenomenon with respect to time, geographical location or other characteristics such as income, profession etc.

EXAMPLE :

If the index number of the wholesale price of spices in 2019 as compared to 2018 in 124, the implication is that the wholesale price of spices in 2019 has increased by 24%.

Here 2019 is the current year, and 2018 is the base year.

Note: 

1. Index numbers are expressed in percentages.
2. The base year index usually equals 100.

USES OF INDEX NUMBERS:

1. They help in framing economic and business policies.
2. They reveal trends and tendencies.
3. They help in simplifying the data, thus facilitating the comparative study.
4. They are used to measure the purchasing power of money.
5. They are useful in deflating.