Comment on the idea that index numbers are indispensable tools in day to day life.

1 Answer | Add Yours

pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

Index numbers can be very important in the daily life of someone who is involved in macroeconomics, but they can also be somewhat imprecise indicators of the things that they are supposed to measure.

For example, Gross Domestic Product is an important index number that is used to measure the health of an economy.  The changes in GDP growth affect the policies of governments, central banks, and businesses (among others).  However, GDP does not truly measure all the ways in which an economy may be "healthy."  For example, it does not measure the amounts of inequality within an economy even though excessive inequality can harm an economy tremendously.

Index numbers are important because they tend to show us things about the overall state of our economies.  But we must always understand that they are constructed numbers that may not accurately reflect reality.

We’ve answered 317,688 questions. We can answer yours, too.

Ask a question