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Index numbers

Index numbers are an important part of the economist’s tool kit. Peter Smith explains what index numbers are and shows some of the ways in which this tool can be used

The most familiar index number is probably the consumer prices index (CPI), which is used to calculate the inflation rate — one of the key indicators that tells us about how the economy is performing. But how is it constructed? And how is it to be interpreted?

Put simply, an index number compares the value of a variable in some period or location with a base value, where the base value is usually expressed as 100.

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Previous

What is price discrimination?

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Parkrun: an example of public good characteristics and externalities

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