Question 51

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

A simple index number is calculated using the formula that involves the current price and the base year's price, and it is essential to express this ratio as a percentage.

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

This option is partially correct as it provides the basic relationship needed for the index calculation. However, it fails to include the crucial multiplication by 100, which is necessary to convert the ratio into an index number format.

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

This option is incorrect because it reverses the relationship between the current price and the base year's price. The formula for a simple index number must have the current price in the numerator to accurately reflect the change or comparison relative to the base year.

C) The current price divided by the base year's price × 100

This is the correct answer as it accurately represents the formula for calculating a simple index number. By multiplying the ratio of the current price to the base year's price by 100, we obtain a percentage that effectively indicates the relative change in price.

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

This option is incorrect as it also reverses the necessary order of the prices. The formula should always place the current price in the numerator to properly compute the index number.

Conclusion

The correct formula for calculating a simple index number is crucial for accurate economic analysis. Option C not only provides the correct relationship between the current and base year's prices but also properly formats this relationship as a percentage. All other options fail to provide the accurate formula either by misplacing the prices or omitting the essential multiplication by 100.