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Explain the features of index numbers. - Economics

Answer in Brief

Explain the features of index numbers.

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Solution

Definition:
According to Croxton and Cowden, “Index Numbers are devices for measuring differences in the magnitude of a group of related variables.”
Following are the various feature of index number:
  1. Statistical tool: Index numbers are statistical devices.
  2. Can be expressed in %: Index numbers are specialized averages which are capable of being expressed in terms of percentages.
  3. Measure the net change: Index numbers measure the net change in one or more related variables over time or between two different time periods or two different localities.
  4. Variable involved: Index number computed from a single variable is called ‘univariate index’ while index constructed from a group of variables is called ‘composite index’.
  5. Base year: The year with which the changes are measured is termed as the base year. In other words, the year with respect to which comparisons are made is the base year and it is denoted by the suffix ‘o’.
  6. Current year: The year for which the index number is prepared is termed as the current year. In other words, the year for which comparisons are required to be made is the current period and it is denoted by the suffix ‘1’.
  7. Base year index: The base year’s index is assumed as 100 and accordingly the value of the current year is calculated.
  8. Measure economic activity: Index numbers are also referred to as ‘barometers of economic activity’ since it is used to measure the trends and changes in the economy.
Concept: Index Numbers
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APPEARS IN

Balbharati Economics 12th Standard HSC Maharashtra State Board
Chapter 6 Index Numbers
Exercise | Q 6. (1) | Page 60
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