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10. To measure the purchasing power of money.
10.3 Types of Index numbers:
There are various types of index numbers, but in brief, we
shall take three kinds and they are
(a) Price Index, (b) Quantity Index and (c) Value Index
(a) Price Index:
For measuring the value of money, in general, price index is
used. It is an index number which compares the prices for a group
of commodities at a certain time as at a place with prices of a base
period. There are two price index numbers such as whole sale price
index numbers and retail price index numbers. The wholesale price
index reveals the changes into general price level of a country, but
the retail price index reveals the changes in the retail price of
commodities such as consumption of goods, bank deposits, etc.
(b) Quantity Index:
Quantity index number is the changes in the volume of
goods produced or consumed. They are useful and helpful to study
the output in an economy.
(c) Value Index
Value index numbers compare the total value of a certain
period with total value in the base period. Here total value is equal
to the price of commodity multiplied by the quantity consumed.
Notation: For any index number, two time periods are needed for
comparison. These are called the Base period and the Current
period. The period of the year which is used as a basis for
comparison is called the base year and the other is the current year.
The various notations used are as given below:
P1 = Price of current year
P0 = Price of base year
q1 = Quantity of current year
q0 = Quantity of base year
242 10.4 Problems in the construction of index numbers
No index number is an all purpose index number. Hence,
there are many problems involved in the construction of index
numbers, which are to be tackled by an economist or statistician.
1. Purpose of the index numbers
2. Selection of base period
3. Selection of items
4. Selection of source of data
5. Collection of data
6. Selection of average
7. System of weighting
10.5 Method of construction of index numbers:
Index numbers may be constructed by various methods as
INDEX NUMBERS Un weighted Weighted Simple
10.5.1 Simple Aggregate Index Number
This is the simplest method of construction of index
numbers. The price of the different commodities of the current year
are added and the sum is divided...
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This note was uploaded on 01/18/2014 for the course BUS 100 taught by Professor Moshiri during the Winter '08 term at UC Riverside.
- Winter '08