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 companion

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 money

6. They are the wage adjuster:

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

consumers

Price index numbers.

7. They compare the standard of living:

Different places have different index numbers. Index numbers may measure the

cost 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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Mahendran S

Mahendran.s