What is index number? What is …

An index number is the measure of change in a variable (or group of variables) over time.

Index numbers are one of the most used statistical tools in economics. Index numbers are not directly measurable, but represent general, relative changes. They are typically expressed as percents.

Advantages of Index Number

• Measurement of change in the price level or the value of money: Index number can be used to know the impact of the change in the value of money on different sections of the society.
• Knowledge of the change in standard of living: Index number helps to ascertain the living standards of people. Money income may increase but if index number show a decrease in the value if money. Living standard may even decline.
• Adjustment in salaries and allowances: Cost of living index number is a useful guide to the government and private enterprises to make necessary adjustment in salaries and allowances of the workers.
• Useful to business community: Price index numbers serve as a useful guide to the business community in planning.
• Information regarding foreign trade: Index of exports and imports provides useful information regarding foreign trade.