Learn Before
Invariance of Index Graph Shape to Reference Period
When data is represented using an index, the visual shape of the plotted curve does not change if the reference period is altered. The selection of a different base year, which is typically normalized to a value of 100, will only result in a vertical shift of the entire graph, leaving the underlying trend, such as a 'hockey stick' pattern, intact.
0
1
Tags
History
Humanities
Economics
Social Science
Empirical Science
Science
Economy
CORE Econ
Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
Ch.2 Technology and incentives - The Economy 2.0 Microeconomics @ CORE Econ
Related
Invariance of Index Graph Shape to Reference Period
Figure 2.13: Wages Relative to the Cost of Capital Goods in England and France (Late 16th to Early 19th Century)
Constructing a Nominal Wage Index
An economic index is created to track the price of a specific basket of goods. In the base year, the price of the basket was $200, and the index was set to 100. The following year, the price of the same basket of goods increased to $250. What is the index value for the second year?
Evaluating the Choice of a Base Period
A country's nominal wage index is reported to be 125 for the year 2022, using the year 2010 as the base period where the index was 100. This value of 125 directly indicates that the average nominal wage in 2022 was $125.
Interpreting Housing Price Indices
Justifying the Use of an Index
The table below shows a price index for a basket of consumer goods over three years, with Year 1 serving as the base period.
Year Price Index Year 1 100 Year 2 110 Year 3 115.5 Based on this index, what can be concluded about the change in prices between Year 2 and Year 3?
Constructing a Price Index
Match each term related to the construction of an economic index with its correct description.
Definition of Consumer Price Index (CPI)
Interpreting an Index Value Below the Base
Evaluating a Political Claim Using a Price Index
Learn After
Real Wages of London Craftsmen and British Population (1264-2001)
An economist creates a graph showing a country's average income from 1980 to 2020, represented as an index with the year 1990 set as the base period (value = 100). The graph reveals a distinct 'U' shape, indicating a period of decline followed by a period of recovery and growth. If the economist decides to replot the exact same data but changes the base period to the year 2010, what effect will this have on the shape of the graphed line?
Interpreting Indexed Data
Consider two individuals, Priya and David, whose preferences for goods X and Y are represented by the following utility functions:
- Priya: U(X, Y) = X^0.3 * Y^0.7
- David: U(X, Y) = X^0.6 * Y^0.4
Based on these functions, which of the following statements accurately compares their preferences?
An economic analyst observes that a country's GDP index for the year 2015 is 120 when the base year is 2010 (set to 100). After changing the base year to 2015 (set to 100), they note that the index for 2010 is now approximately 83.3. The analyst concludes that this change in index values proves that the rate of economic growth between 2010 and 2015 appears slower when 2015 is used as the base year. This conclusion is correct.
Interpreting Indexed Economic Data
Advising a Junior Analyst on Index Charts
An analyst is studying the price of a specific commodity from 2000 to 2020. They create two graphs using the same raw price data, but with different reference periods for the price index.
- Graph A uses the year 2000 as the base period (index = 100).
- Graph B uses the year 2010 as the base period (index = 100).
Visually, the entire plotted line in Graph B is positioned lower on the y-axis than the line in Graph A. What is the most accurate conclusion that can be drawn from this observation?
Analyzing Indexed Data Interpretations
Evaluating a Manager's Performance Review
An analyst presents a chart of a company's quarterly sales from 2010 to 2020, indexed with 2010 as the base year (value = 100). The chart displays a dramatic 'hockey stick' growth pattern, with a sharp increase in the final two years. A manager, concerned by the visual severity of this recent spike, suggests changing the base year to 2018 to make the overall trend appear more stable. What will be the actual effect of changing the base year to 2018 on the visual representation of the data?