A way of simplifying the measurement of averages (e.g. inflation and stock markets) and comparing different data series by establishing a base of 100.
Index numbers are calculated by selecting a base year and then dividing each of the values by that base year value and seeing the proportionate change relative to the base year rather than the percentage change. It is important to remember that index numbers DO NOT show the percentage change in a variable over time. The main benefit of index numbers is they allow cross-variable comparisons with variables that use different measurements. The table shows how the index numbers for GDP are calculated using the method mentioned above.
