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Index number enables us to calculate a single measure of change of a large number of items. The index numbers are needed for the general and specific purpose they are
- Measurement of Change in the Price Level or the Value of ‘ Money Index number measures the value of money during different periods of time as well as we can use it to know the Impact of the change in the value of money on different sections of society. It can be worked out to correct the inflationary and deflationary gaps in the system.
- Information of Foreign Trade Index of export and import provides useful information regarding foreign trade which helps in formulating the policies of export and import.
- Calculating Real Wages CPI are used in calculating the purchasing power of money and real wage as follows
- Purchasing power of money = 1/Cost of living index
- Real wage = (Money wage/Cost of living index) × 100
- Measuring and Comparing Output Index of Industrial Production (IIP) gives us a quantitative figure about the change in production in the industrial sector and thus helps in comparing industrial output in different periods. Similarly, agricultural production index provides us an estimate of the production index provides us an estimate of the production in agricultural sector.
- Policy Making of Government With the help of index numbers government determines the minatory and fiscal prey and take nassery steps to develop the country.
- Indicating Stock Prices Sensex and NIFT are index numbers of share prices on BSE and NSE respectively. They serve as a useful guide for investors in the stock market. If the sensex and nifty are rising, investors have positive expectations about the future performance of the economy and it is an appropriate time for investment.