10 Uses of Index Number In Economy

Here you will study Uses of Index Number In Economy.The main uses of index number are as follows:Index numbers are very important in economy of country.

10 Uses of Index Number In Economy

  1. Measurement of Value of Money:

Index number serves as an instrument for measuring the value of money or its reciprocal, the prices of goods and services, which can be purchased with the help of money.

  1. Helpful to Govt, and People:

The government and people are very much concerned with the changes in value of money. The rise or fall in the purchasing power of money have direct effects on the socio economic structure of the country. The government, therefore, compiles different typesop index numbers and formulates policies on the basis of their results.

  1. Useful for Comparison:

Index numbers help in comparing the economic conditions of a group of people at different periods of time.

  1. To know the Consumption Standard:

If we are to know the true consumption standard of people in a locality, we can compute consumption index number for a particular section of the society.

  1. Fixation of Wages:

For wage fixation or wage revision, the cost of living index number is a very useful guide for government and the executives of firm. The concerns can revise the wages in proportion to the changes in the cost of living index number.

  1. Serve as a Guide:

A price index number is a very good guide for a businessman and industrialist. The industrialist and the businessman can take calculated decisions on the basis of the price index number results.

  1. To Judge the Success of a Concern:

If we are to judge the prospects of a manufacturing concern, the investment index number can be constructed for giving a true picture of the net yield of various industries as a whole.

  1. Useful for Comparison of Prices:

International price index number can be used for comparing general price level of developed and under developed countries of the world.

  1. For Raising the Salaries:

For the promotion and increase in of the salaries of employees, the indices of proficiency of the employees are also used.

  1. For Stabilizing the Prices:

The monetary authority takes measures for stabilizing price levels, proper distribution of wealth etc, in the country from index number of wholesale prices.