FRAME 14.
Percentages are a useful method for comparing various items. However, to make comparisons
over several time periods, the INDEX NUMBER is often a better tool. Percent change measured
change over two time periods. Index numbers are used to compare like items in each of several
years to one common year which will be called a base year. In terms of a formula, we have the
following:
Index number = Value in any time period X 100
Value in base time period
Consider the following example involving the cost for a television set during a seven year period
where 1985 is the base year.
YEAR
PRICE
1983
2
1984
388
(base) 1985
400
1986
420
1987
424
1988
460
1989
468
Using the index number formula, the index number for 1985 is as follows:
Index Number for 1985 = 400 X 100
400
= 1 X 100
= 100
Note that we compared the price for 1985 to the price for the base ear which also happened to
be 1985. Just as with a percent we multiplied by 10O. In fact, index numbers are sometimes
called relative percentages, but index numbers never include the word "percent." The index
number for 1985 is simply 100, not 100 percent.
QUESTIONS:
What is the index number for 1983? _______________
What is the index number for 1987? _______________
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