Question

Discuss what is an index number, its characteristics, and reasons for computing an index number

Answer 1

Index numbers help to measure the economist to the relative change in the price, quantity, value some other item of interest from the one time period to another.In simple words index numbers measures how variables change over period.

Its characteristics are as follows

• It shows the changes of the variables in terms of the average
• It measures the relative changes
• It quantitatively expressed variables value

The uses of index numbers as follows

• This helps the government to take suitable policies example the inflation rate in the economy calucuted using index numbers
• Information regarding the foreign trade
• Use full of business community they can predict the ups and down in the economy take the suitable policy to improve their business.