Economics • Macroeconomics

Index Numbers

A weighted price index

  • Weighted index (CPI)
  • Simple average
  • Before
CPI this year (base year = 100)—
Simple average—
Inflation rate—

The basket

Weights: 100

Inflation

Scenarios

Index Numbers — Explanation

An index number shows how something has changed compared with a base year, which is given the value 100. An index of 112 means 12% higher than in the base year. Choose a view in the title bar.

CPI: a weighted price index. The consumer prices index (CPI) measures the change in the prices of a basket of goods and services that a typical household buys.

The New Zealand basket is loosely based on the groups in Stats NZ's CPI, with the weights rounded and the smaller groups put together. Stats NZ reviews the real weights every few years.

Real vs nominal. A nominal value is measured in each year's own prices. A real value has had the effect of price changes taken out: it is measured in base-year prices.

Terms of trade. Terms of trade = index of export prices ÷ index of import prices × 100. Above 100, the terms of trade have improved since the base year: each unit of exports pays for more imports. Below 100, they have worsened.

Common exam mistakes

Objective: calculate and interpret a weighted price index and the inflation rate, convert nominal values into real values, and calculate and interpret the terms of trade (Cambridge IGCSE Economics 0455: inflation and the CPI; Cambridge International AS Level Economics 9708: price indices, real and nominal values, and the terms of trade).

Where this fits

  • AP: AP Macroeconomics Goes beyond AP Macroeconomics: The terms of trade index isn't in AP Macroeconomics.
  • AQA: AQA A Level Economics (7136)
  • Cambridge: Cambridge IGCSE Economics (0455); Cambridge A Level Economics (9708); Cambridge AS Level Economics (9708) Goes beyond Cambridge IGCSE Economics (0455): The terms of trade and real vs nominal conversion aren't in 0455.
  • IB: IB Economics HL; IB Economics SL Goes beyond IB Economics SL: Calculating a weighted price index and the terms of trade are HL only.
  • NCEA Level 2 Economics: 91222 Analyse inflation using economic concepts and models; 91224 Analyse economic growth using economic concepts and models; 91226 Analyse statistical data relating to two contemporary economic issues
  • NCEA Level 3 Economics: 91403 Demonstrate understanding of macro-economic influences on the New Zealand economy
  • Pearson Edexcel International: Edexcel International GCSE Economics (4EC1); Edexcel International A Level Economics Goes beyond Edexcel International GCSE Economics (4EC1): The terms of trade and real vs nominal conversion aren't in 4EC1.
  • USDP: USDP Economics Goes beyond USDP Economics: The terms of trade index goes beyond a typical high-school course.

Index Numbers — Key Terms

Key concepts in English, with te reo Māori, Chinese (Simplified) and Korean.

EnglishTe reo Māori中文（简体）한국어What it means on this page
Index Numberno attested term指数 (zhǐshù)지수 (jisu)A number that shows how something has changed compared with a base year, which is given the value 100. An index of 112 means 12% higher than in the base year.
Base Yearno attested term基年 (jīnián)기준 연도 (gijun yeondo)The year an index number is measured from, given the value 100.
Consumer Prices Index (CPI)no attested term消费者价格指数 (xiāofèizhě jiàgé zhǐshù)소비자 물가 지수 (sobija mulga jisu)A weighted index of the prices of a basket of goods and services bought by a typical household, used to measure inflation. In New Zealand it is published by Stats NZ every quarter.
Basket of Goods and Servicesno attested term一篮子商品和服务 (yī lánzi shāngpǐn hé fúwù)—The representative set of goods and services, in groups such as food, housing and transport, whose prices are measured to calculate a price index.
Weightsno attested term权重 (quánzhòng)가중치 (gajungchi)In a price index, the importance given to each item: its share of household spending. The weights add up to 100.
Price Relativeno attested term——An item's current price as a percentage of its base-year price: current price ÷ base-year price × 100.
Inflation Rateno attested term通货膨胀率 (tōnghuò péngzhàng lǜ)물가 상승률 (mulga sangseungnyul)The percentage rise in the general price level over a year: (this year's price index − last year's) ÷ last year's × 100.
Deflationno attested term通货紧缩 (tōnghuò jǐnsuō)디플레이션 (dipeulleisyeon)A fall in the general price level: a negative inflation rate. (Lower inflation, or disinflation, is not deflation: prices are still rising.)
Nominal Valueno attested term名义值 (míngyì zhí)명목 가치 (myeongmok gachi)A value measured in the prices of the time (current prices), not adjusted for inflation.
Real Valueno attested term实际值 (shíjì zhí)실질 가치 (siljil gachi)A value adjusted for inflation, measured in base-year prices: nominal value ÷ price index × 100.
Nominal GDPno attested term名义GDP (Míngyì GDP)명목 GDP (Myeongmok GDP)The total value of goods and services produced in a country, measured in current prices — not adjusted for inflation or price-level differences between countries.
Real GDP Growthno attested term实际GDP增长率 (Shíjì GDP zēngzhǎnglǜ)실질 GDP 성장률 (Siljil GDP seongjangnyul)The percentage change in GDP after taking out inflation: approximately nominal GDP growth minus the inflation rate.
Terms of Tradeno attested term贸易条件 (màoyì tiáojiàn)교역 조건 (gyoyeok jogeon)The rate at which one good exchanges for another in trade between countries; more generally, the price of a country's exports relative to the price of its imports.
Export Price Indexno attested term出口价格指数 (chūkǒu jiàgé zhǐshù)수출 물가 지수 (suchul mulga jisu)A price index of the goods and services a country sells abroad, compared with a base year of 100.
Import Price Indexno attested term进口价格指数 (jìnkǒu jiàgé zhǐshù)수입 물가 지수 (suip mulga jisu)A price index of the goods and services a country buys from abroad, compared with a base year of 100.

On the te reo Māori column. Terms marked as gaps have no attested equivalent in the sources checked — Karaitiana Taiuru's Dictionary of Māori Computer and Social Media Terms, Paekupu, the Reserve Bank's te reo financial glossary, NZQA and Te Aka. No coinage is printed as though it were established; where a class needs one, commission it from Te Taura Whiri i te Reo Māori and credit the translator. Te reo Māori is not italicised and takes no plural "s".