Measurements of Macroeconomic Performance- Uses of index numbers

Question 1

What are index numbers used for?

Answer 1

To make comparisons between years and to measure the magnitude of change over time

Index numbers facilitate the analysis of economic performance over different periods.

Question 2

What is a base year in the context of index numbers?

Answer 2

A reference year against which other years are compared, assigned a value of 100

For example, if 2015 is the base year, its index number is 100.

Question 3

If inflation rises by 5% from the base year, what will the index number for that later year be?

Answer 3

105

The calculation is based on the percentage increase from the base year.

Question 4

How does the Consumer Price Index (CPI) account for different types of goods?

Answer 4

Different items have different weights based on consumer spending

Food typically has a larger weighting than clothing in the CPI calculation.

Question 5

What is the formula for calculating an index number?

Answer 5

(Pn/P0) x 100

P0 is the price level in the base year, and Pn is the price in the year being compared.

Question 6

How are weights assigned in the calculation of index numbers?

Answer 6

Using the quantity of the unit being compared and the original price of the unit

The total amount spent in the base year is calculated as P0 x Q0.

Question 7

Fill in the blank: The total amount spent in the base year is calculated as _______.

Answer 7

P0 x Q0

This formula helps establish the base for comparison in subsequent years.

Question 8

True or False: The index number measures the change in price over time.

Answer 8

True

Index numbers are vital for tracking inflation and price changes in the economy.

Question 9

What type of goods typically has a larger weighting in the CPI?

Answer 9

Food

Consumers generally allocate a larger portion of their income to food compared to clothing.