Routledge Dictionary of Economics, Second Edition
A device for measuring changes in an economic variable, especially NATIONAL INCOME or prices, over a period of time. The value of the variable in the initial year (the ‘base’ year) is set equal to 100 and the value for each subsequent year is calculated as a percentage of it. To calculate quantity changes, e.g.
in the GROSS DOMESTIC PRODUCT, the components of the GDP are weighted by the prices of each item; to calculate price changes, quantity weights reflecting the relative amounts consumed or produced are used. The best known indices are those of Laspeyres and Paasche. Before JEVONS and others constructed index numbers in the 1860s, there was little accurate knowledge of the precise degree of inflation in industrialized economies, and there was often a confusion between the causes and amount of INFLATION.
References
Allen, R.G.D. (1975) Index Numbers in Theory and Practice, London: Macmillan.
Stuvel, G (1989) The Index-Number Problem and its Solution, London: Macmillan.
This is the complete article, containing 157 words
(approx. 1 page at 300 words per page).
View More Summaries on Index number
