index number formulas for price and productivity measurement. explain that the economic approach to index number theory concentrates on finding functional. Explain what a price index is and how to compute one; Calculate inflation rates using price Index numbers are unit-free measures of economic indicators. 27 Jul 2019 Essentially it attempts to quantify the aggregate price level in an economy and thus measure the purchasing power of a country's unit of currency. The paper reviews four main approaches to bilateral index number theory where two of fixed baskets, stochastic, test or axiomatic and economic approaches. 1 Jan 2009 economic theoretic approach to index number formulas supports number calculation should be defined as the ratio of the weighted average Henri Theil's Contributions to Economics and Econometrics pp 689-701 | Cite as working with price and quantity index numbers, advocated particularly by the Finnish econometrician Törnqvist (1936), whose log-changes are defined as. 11 Mar 2015 (at A2 2) explain aspects of an exchange rate index, or FACTFILE: GCE ECONOMICS / AS2 INDEX NUMBERS AND INDICES is whether and
Productivity defined 3. Growth-accounting framework 3. Economic index numbers 4. Index-number formulae 4. Laspeyres and Paasche indices 5. Tornqvist and Journal of Economic Perspectives—Volume 12, Number 1—Winter 1998—Pages 47–58. Index Laspeyres index and the true price index can be defined as:.
Index numbers are useful for comparing the price situation of one year with that of another. For example, the index numbers of the years 1939 to 1945 show how the price level and the value of money changed during these years. But long range comparisons should not be made. It is useless to compare the index number of 1939 with that of 1999.
An index number is an economic data figure reflecting price or quantity compared with a standard or base value. The base usually equals 100 and the index number is usually expressed as 100 times the ratio to the base value. Index numbers measure changes in such magnitudes as prices, incomes, wages, production, employment, products, exports, imports, etc. By comparing the index numbers of these magnitudes for different periods, the government can know the present trend of economic activity and accordingly adopt price policy, foreign trade policy and general economic policies.
In constructing an index number, the following steps should be noted: 1. Purpose of the Index Number: 2. Selection of Commodities: 3. Selection of Prices: 4. Selection of an Average: 5. Selection of Weights: 6. Selection of the Base Period: 7. Selection of Formula: An index number of prices is an index of the prices of goods and services bought by the household. An economy produces a large number of different products. The price change of each commodity is expressed typically in percentage terms and then the average of the price changes of these commodities is calculated. An index number is not applicable to an individual belonging to a group for which it is constructed. If an index number shows a rise in the price level, an individual may not be affected by it. This is because an index number reflects averages. Index numbers are termed as a measure of change, a device to measure change or a series representing the process of change. Index numbers are used as an indicator to indicate the changes in economic activity. They also provide framework for decision making and to predict future events. There are three types of index numbers which are generally In economics and finance, an index is a statistical measure of change in a representative group of individual data points. These data may be derived from any number of sources, including company performance, prices, productivity, and employment. Economic indices track economic health from different perspectives.