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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

Imagine that the government statisticians who calculate the inflation rate have been updating the basic basket of goods once every 10 years, but now they decide to update it every five years. How will this change affect the amount of substitution bias and quality/new goods bias?

Why does the “quality/new goods bias” arise if we calculate the inflation rate based on a fixed basket of

goods?

Rosalie the Retiree knows that when she retires in 16 years, her company will give her a one-time payment of \(20,000. However, if the inflation rate is 6% per year, how much buying power will that \)20,000 have when measured in today’s dollars? Hint: Start by calculating the rise in the price level over the 16 years.

Construct the price index for a “fruit basket” in each year using 2003as the base year.

How to Measure Changes in the Cost of Living introduced a number of different price indices. Which price index would be best to use to adjust your paycheck for inflation?
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