Pearson Edexcel · A-Level · Economics B
Course version: 9EB0 · Version from Sept 2015
Growing economies: e) Calculating and interpreting index numbers
Index numbers are a statistical measure used to track changes in economic variables over time, such as inflation (CPI) or economic growth (GDP), relative to a base year.
Checked against the Pearson Edexcel 9EB0 specification (opens in a new tab) on .
- Point 5 of 5
- 4 key terms
Study notes
From the checked teaching notes for this specification point.
The idea
Index numbers are a statistical measure used to track changes in economic variables over time, such as inflation (CPI) or economic growth (GDP), relative to a base year. The base year is always assigned an index value of 100. To calculate an index number for a specific year, divide the raw value of that year by the raw value of the base year, then multiply by 100. For example, if GDP was £2 trillion in the base year and £2.4 trillion in the current year, the index number is (2.4 / 2) × 100 = 120. Interpreting this index reveals a 20% increase in GDP since the base year. Index numbers allow economists to easily compare the relative magnitude of changes across different data sets, even when the original units or scales differ significantly.
What earns the marks
- Identification of the base year as having an index value of 100.
- Application of the formula: (Current Value / Base Value) × 100.
- Calculation of percentage changes between two index numbers.
- Interpretation of index numbers to explain the direction and scale of economic changes.
Common mistakes and how to put them right
Assuming a fall in the index number (e.g., from 120 to 115) means the raw value is negative.
Put it right: A fall in the index number simply means the value has decreased relative to the previous period, but it remains above the base year level if the index is over 100.
Calculating the percentage change between two non-base years by just subtracting the index numbers.
Put it right: Find the percentage change between two non-base years, use the formula ((New Index - Old Index) / Old Index) × 100.
Forgetting to multiply by 100 when calculating the index number from raw data.
Put it right: Multiply the ratio of the current value to the base value by 100 to convert it into an index format.
Exam tips
- Always check which year is designated as the base year in a data table before starting calculations.
- When asked to interpret an index number, explicitly state the percentage change from the base year.
- Use index numbers to compare trends between two different economic variables, highlighting relative rates of growth.
Try the lesson
The start of the Growing economies: e) Calculating and interpreting index numbers lesson, made from checked teaching notes for this specification point.
Have a go first
A country's real GDP was £500 billion in the base year (Year 1). In Year 2, its real GDP rose to £600 billion. What is the index number for real GDP in Year 2?
Listen
Index numbers are a statistical measure used to track changes in economic variables over time, such as inflation (CPI) or economic growth (GDP), relative to a base year. The base year is always assigned an index value of 100. To calculate an index number for a specific year, divide the raw value of that year by the raw value of the base year, then multiply by 100. For example, if GDP was £2 trillion in the base year and £2.4 trillion in the current year, the index number is (2.4 / 2) × 100 = 120. Interpreting this index reveals a 20% increase in GDP since the base year. Index numbers allow economists to easily compare the relative magnitude of changes across different data sets, even when the original units or scales differ significantly. A strong answer earns marks for these points. Identification of the base year as having an index value of 100. Application of the formula: (Current Value / Base Value) × 100. Calculation of percentage changes between two index numbers. Interpretation of index numbers to explain the direction and scale of economic changes. A common slip: Assuming a fall in the index number (e.g., from 120 to 115) means the raw value is negative. Instead, A fall in the index number simply means the value has decreased relative to the previous period, but it remains above the base year level if the index is over 100. Exam tip: Always check which year is designated as the base year in a data table before starting calculations.
Key words
Say what each word means before you turn the card.
Index numbers
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Base year
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Interpreting an index
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Percentage change between index numbers
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See every definition
- Index numbers
- A statistical measure used to track changes in economic variables over time, such as inflation or economic growth, relative to a base year.
- Base year
- The year against which other years are compared, always assigned an index value of 100.
- Interpreting an index
- Reading an index number to reveal the percentage change in a variable since the base year, such as a 20% increase in GDP.
- Percentage change between index numbers
- Found using the formula ((New Index - Old Index) / Old Index) × 100 when comparing two non-base years.
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