CHAPTER 12: INDEX NUMBERS Flashcards
A summary measure designed to show changes in the value of a variable or a group of related variables taken as a whole over a period of time, geographic location, or some other characteristic
Index Number
A simple relative is an example of…
an index number
A summary measure that combines the price changes for a group of items, using weights to give each item its appropriate importance
Price Index
Measures the combined effect of price changes in many goods and services purchased by households
Consumer Price Index (CPI)
A summary measure of relative changes over time in the quantities or volume of some measurable characteristic of a specific commodity or group of commodities
Quantity Index
What are the four measurable characteristics used in quantity index
- Production
- Sales
- Inventories
- Consumption
Monitors the changes in the quantity of a commodity produced or manufactured by the establishments
Volume of Production Index (VoPI)
The summary measures of relative changes over time in the value (price of commodity x quantity consumed) of a commodity or group of commodities
Value Index
Tracks the changes in total market capitalization of all the common stocks of companies listed at the Exchange with base value of 1000 points
All Shares Index of the Philippine Stock Exchange (PSE)
What are the two types of Aggregate Index Numbers?
- Unweighted Index Numbers
- Weighted Index Numbers
What are the two types of unweighted index numbers?
- Simple Aggregate Index
- Simple Average of Relatives Index
What are the five types of weighted index numbers?
- Weighted Aggregate Index
- Laspeyres’ Index
- Paasche’s Index
- Edgeworth-Marshall’s Index
- Fisher’s Ideal Index
An index number that can be viewed as the average of the percent relative series, where simple relatives with larger bases are given heavier weights
Simple Aggregate Index (SAI)
What are the advantages and disadvantages of the simple aggregate index?
Advantage:
- The method is very easy to apply
Disadvantages:
- It does NOT take into account the appropriate importance of the various commodities
- It gives greater importance to simple relatives with large bases
- The particular units in the magnitude like liters, kilos, and sacks can affect the value of the index
The weighted method of SAI where the items have different units of measurement
Weighted Aggregate Index (WAI)
The simple arithmetic mean of relatives and a more objective form of unweighted index numbers
Simple Average of Relatives Index
The simple average of relatives index still _______________ take into account the appropriate importance of the items since each simple relative is given equal importance
does not
What are the weights for the Price Index and Quantity Index for the Weighted Aggregate Index?
Price Index - the weights are the quantities purchased
Quantity Index - the weights are the prices
A type of weighted index number where it is based on the assumption that the amount purchased by a typical family does not change from the base year amount
Laspeyres’ Index or Base-Year Method (LI)
A type of weighted index number that uses quantities as weights and is convenient to use on a continuing basis since the weights remain fixed from one period to the next
Laspeyres’ Index or Base-Year Method (LI)
A type of weighted index number where it requires a new set of weights every year since the quantities for year n are used as weights
Paasche’s Index or Current Year Method (PI)
The weighted index number used far more often than the Paasche’s Index for measuring price changes and is larger than Paasche’s Index in general
Laspeyres’ Index or Base-Year Method (LI)
The ___________ tends toward an upward bias, while ____________ tends to underestimate the true changes in price
Laspeyres’ Index; Paasche’s Index
A type of weighted index number where it is a practical compromise between the use of a constant base year weights and year n by using the average of the two weights and
Edgeworth-Marshall’s Index (EMI)
