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Chapter 22: Q 20. (page 553)

What is indexing?

Short Answer

Expert verified

Indexing is related to the adjustments in various components.

Step by step solution

01

Step 1. Introduction

Indexing is important in economics because by the use of indexing we came to adjust and simplify huge data into informative data.

02

Step 2. Definition

Indexing is defined as the use of some standard indicator as a yardstick. In economics and finance, field indexing is the statistical estimate for tracing economic data like inflation, GDP, unemployment, market returns, and productivity.

03

Step 3. Example

For example, when we adjust the wages of employees according to their standard of living.

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Most popular questions from this chapter

Why do you think the U.S. experience with inflation over the last 50 years has been so much milder than in many other countries?

If inflation rises unexpectedly by 5%, indicate for each of the following whether the economic actor is helped, hurt, or unaffected:

a. A union member with a COLA wage contract

b. Someone with a large stash of cash in a safe deposit box

c. A bank lending money at a fixed rate of interest

d. A person who is not due to receive a pay raise for another 11 months

Describe a situation, either a government policy situation, an economic problem, or a private sector situation, where using the CPI to convert from nominal to real would be more appropriate than using the GDP deflator.

Edna is living in a retirement home where most of her needs are taken care of, but she has some discretionary spending. Based on the basket of goods in Table 9.5, by what percentage does Edna’s cost of living increase between time 1and time 2?

Why is the GDP deflator not an accurate measure of inflation as it impacts a household?
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