Question

Use a Base Year to Calculate Index Numbers for the Cost of a Basket of Goods and Services

Please provided a detailed explanation so I can use it as a guide in my studies.

Question

The table below shows the total expenditure on a basket of goods and services; use this information to calculate the index number for the cost of a basket of goods and services in period 1, assuming Period 2 is the base year. (Round to 1 decimal place.)

	Total Expenditure	Index Number
Period 1	$1,020
Period 2	$1,475

Answer 1

Index Number = (Current year expenditure / Base year expenditure) * 100

	Total Expenditure($)	Index Number
Period 1	1020	69.1 [i.e., (1020/1475)*100]
Period 2	1475	100 [i.e., (1475/1475)*100]