Question 28

The formula for calculating a simple index number is the current price divided by the base year’s price multiplied by 100.

This formula allows for a clear comparison of price levels over time, effectively illustrating how much prices have changed in relation to a designated base year.

A) The base year’s price divided by the current price

This option is incorrect because it reverses the relationship needed for an index number. The base year’s price should not be divided by the current price as this does not provide a meaningful comparison of price changes.

B) The current price divided by the base year’s price × 100

This option is correct as it accurately represents the formula for a simple index number. By dividing the current price by the base year’s price and then multiplying by 100, we obtain a value that reflects the percentage change in price since the base year.

C) The current price divided by the base year’s price

While this option provides part of the formula, it fails to multiply by 100, which is necessary to express the index number as a percentage of the base year. Thus, it does not provide the full context needed for interpretation.

D) The base year’s price divided by the current price × 100

This option is incorrect as it also reverses the necessary relationship needed for calculating an index. Multiplying the base year’s price by 100 and dividing by the current price does not yield an index number reflecting current price levels against the base year.

Conclusion

The correct answer, option B, effectively captures the formula for calculating a simple index number, allowing for a percentage representation of price changes over time. Options A, C, and D fail to provide the complete or correct calculation needed, demonstrating why option B is the definitive choice for this question.