# 3. Measuring Macroeconomic Performance - Index Numbers Flashcards

What are index numbers?

An index number is a figure reflecting price or quantity compared with a base value. The base value always has an index number of 100. The index number is then expressed as 100 times the ratio to the base value.

What do changes in index numbers represent?

Percentage increases in price/inflation (or whatever) push the index number above 100, and percentage decreases push the figure below 100. An index number of 102 means a 2% rise from the base year, and an index number of 98 means a 2% fall.

How are index numbers calculated?

To calculate index numbers find the % change from the base year and add that to 100 (the base year value).E.g. 2011 (Base Year) Oil Prices are $80/barrel, in 2018 (new year of comparison) Oil Prices are only $50/barrel. The % decrease in price here is -37.5% - so 100 - 37.5 = 62.5 - the new index number for the year 2018.

When are index numbers commonly used?

The obvious example of use of index numbers is to measure CPI inflation - each quarter is compared to the last - note: inflation is calculated using ‘the basket of goods’ and varied weightings for different items (see inflation cards)