# index number

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## index number

**index number,**in econometrics, a figure reflecting a change in value or quantity as compared with a standard or base. The base usually equals 100 and the index number is usually expressed as a percentage. For example, if a commodity cost twice as much in 1970 as it did in 1960, its index number would be 200 relative to 1960. Index numbers are used especially to compare business activity, the cost of living, and employment; one of the most influential indexes in the United States is the Consumer Price Index (see under cost of living). Index numbers enable economists to reduce unwieldy business data into easily understood terms.

### Bibliography

See R. Marris, *Economic Arithmetic* (1958); Z. Karabell, *The Leading Indicators: A Short History of the Numbers That Rule Our World* (2014).

## index number

a measure which shows average changes over a period of time in the price, quantity or value of one, or a collection, of items. The RETAIL PRICE INDEX and the Index of Production are examples of indices that measure a collection (basket) of items. Any series of figures can be put into index form. In a time series the chosen base year is set to 100 and all the changes are calculated relative to that base year. If there is only one variable in the index, this is done by obtaining the ratio of the current value to the base year value and multiplying by 100:

If an index, for example the Index of Average Price of New Dwellings, contains only one variable, the calculation of the Index is straightforward. The construction of composite indices has to take into consideration the choice of items to be included, their availability and reliability he need for weights, and the method of calculation. Most indices are weighted to reflect the relative importance of the various items. A Laspeyres index uses weights fixed in the base year. As time goes on this can make the weighting system unrepresentative. A Paasche index uses weights from the current year. This retains representation but makes comparison more difficult. One technique to overcome lack of representation is to relate the changes in the index to the previous year instead of the base year. This is known as ‘chain basing’. Index numbers can also be re-based, i.e. a more recent year is used for the base year.