I B-com. unit -v. index Number

                       

                       Unit- V

                  Index Number

Definition [Index Number]

Index numbers are devices for measuring differences in the magnitude of a group of

related variables.

CHARACTERSTICS OF INDEX NUMBERS

The following points are worth considering:

1. Index number are specialized averages

2. Index number are expressed in percentages

3. Index number measure changes not capable of direct measurement

4. Index number are for comparison

1. Index number are specialized averages:

Normally, average can be used to compare only those variables which are

expressed in the same units. But index numbers helps in comparing the changes invariables which are in different units.

2. Index number are expressed in percentages:

Index numbers are expressed in terms of percentages so as to show the extent of

change. However, percentage sign (%) is never used.

3. Index number measure changes not capable of direct measurement

Where it is difficult to measure the variation in the effects of a group of variables Directly or where the variations are entirely incapable of direct

quantitative study,relative variations are measured with the help of index numbers.

4. Index number are for comparison:

The index numbers by their nature are comparative. They compare changes taking place Over time or between places and like categories.

          USES OF INDEX NUMBERS

The uses of index numbers are shown below:

1. They measure the relative change:

Index numbers are particularly useful in measuring relative changes. They give

better idea of changes in levels or price, production, business activity employment, etc.

2. They are of better comparison

The index number reduces the changes of price level into more useful and

understandable form. The numbers of the changes are further reduced to percentages which are easily comparable.

3. They are goods guides:

Index numbers are not restricted to the price phenomenon, alone. any

phenomenon, which is spread over a period to time ,is capable to being expressed numerically through index number

.

4. They are economic barometers:

Various index numbers computed for different purposes; say employment, trade,transport, agriculture, industry, etc, are of immense value in dealing with, different economic problems. Thus index numbers are the economic barometers

5. They are the pulse of the economy:

The stability of prices or their inflating or deflating condition can well be

observed with the help of indices. Index numbers of general price level will measure the purchasing power of mone

6. They are the wage adjuster:

In all the fields of economy, the wage adjustments are done with the study of

consumersPrice index numbers.

7. They compare the standard of living:

Different places have different index numbers. Index numbers may measure thecost of living of different classes of people.

8. They are a special types of averages:

All the basic ideals of average are employed for the construction of index number.But in index number averages the variables have different units of measurement.

9. They help in formulating policies:

 Formulation of good policies for the future depends upon past trends.

10. They measure the purchasing power of money:Index numbers are helpful in finding out the intrinsic worth of money as contrasted with Its nominal worth.

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                                           Vishnu Bharathi 

                                              23ucm039

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