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Q145 (IAS/1998) Economy › Money, Banking & Inflation › Inflation measurement Answer Verified

The current price index (base 1960) is nearly 330. This means that

Result
Your answer: —  Â·  Correct: C
Explanation

An index number measures the relative change in a phenomenon from a base year; the base-year index is conventionally set to 100 [1]. The Consumer Price Index (and other price indices) is constructed as a weighted average of price changes for a fixed basket of goods and services, i.e., the ratio of current basket cost to base-year cost multiplied by 100 [2]. The individual item weights reflect expenditure shares and remain fixed until base revision [3]. Thus, a current price index of about 330 (base 1960 = 100) means the weighted average price level of that specified basket is roughly 3.3 times its 1960 level; it does not mean every item (or a single commodity like gold) rose exactly 3.3 times.

Sources

  1. [1] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 1: Fundamentals of Macro Economy > 1.18 Inflation Indices > p. 30
  2. [2] https://unctadstat.unctad.org/EN/IndicatorsExplained/statie2021d1_en.pdf
  3. [3] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 1: Fundamentals of Macro Economy > 1. Consumer Price Index (CPI): > p. 31
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