Question 44

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

The formula for calculating a simple index number involves taking the current price, dividing it by the base year’s price, and then multiplying the result by 100 to express it as a percentage.

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

This option is correct as it accurately describes the method used to calculate a simple index number. By dividing the current price by the base year's price and multiplying by 100, one obtains an index number that reflects the relative change in price compared to the base year.

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

This option is incorrect because it omits the crucial step of multiplying by 100. Without this multiplication, the result does not represent an index number, which is typically expressed as a percentage for easier interpretation.

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

This option is incorrect as it reverses the relationship between the current and base year's prices. The formula for a simple index number requires the current price to be in the numerator, not the base year's price.

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

This option is also incorrect because, similar to option C, it reverses the necessary calculation. While it includes multiplication by 100, it does not follow the correct sequence needed to compute a simple index number.

Conclusion

The correct formula for a simple index number is clearly represented by option A, as it includes both the necessary division and multiplication to yield a percentage. Options B, C, and D do not provide the correct approach for calculating an index number, highlighting the importance of following the established formula in economic measurements.