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    Calculation of Chain Index Numbers: Steps

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    isha_mital
    1. A chain index number is used to compare price levels over successive time periods by using the previous period as the base rather than a fixed base year. 2. To calculate a chain index number, the price figures for each period are expressed as a percentage of the preceding period to obtain link relatives. These link relatives are then multiplied together to obtain chain indices. 3. Chain index numbers are more flexible than fixed base indices and will not be equal to corresponding fixed base indices unless they meet the circular test of having the product of all link relatives equal to 1.

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    Calculation of Chain Index Numbers: Steps

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    isha_mital
    105 views2 pages
    1. A chain index number is used to compare price levels over successive time periods by using the previous period as the base rather than a fixed base year. 2. To calculate a chain index number, the price figures for each period are expressed as a percentage of the preceding period to obtain link relatives. These link relatives are then multiplied together to obtain chain indices. 3. Chain index numbers are more flexible than fixed base indices and will not be equal to corresponding fixed base indices unless they meet the circular test of having the product of all link relatives equal to 1.

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    gives a brief overview of chain indices

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    Chain Index

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    1. A chain index number is used to compare price levels over successive time periods by using the previous period as the base rather than a fixed base year. 2. To calculate a chain index number, the price figures for each period are expressed as a percentage of the preceding period to obtain link relatives. These link relatives are then multiplied together to obtain chain indices. 3. Chain index numbers are more flexible than fixed base indices and will not be equal to corresponding fixed base indices unless they meet the circular test of having the product of all link relatives equal to 1.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    105 views2 pages

    Calculation of Chain Index Numbers: Steps

    Uploaded by

    isha_mital
    1. A chain index number is used to compare price levels over successive time periods by using the previous period as the base rather than a fixed base year. 2. To calculate a chain index number, the price figures for each period are expressed as a percentage of the preceding period to obtain link relatives. These link relatives are then multiplied together to obtain chain indices. 3. Chain index numbers are more flexible than fixed base indices and will not be equal to corresponding fixed base indices unless they meet the circular test of having the product of all link relatives equal to 1.

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    Download as DOCX, PDF, TXT or read online from Scribd
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    CHAIN INDEX:

    We have noted that with passage of time new commodities enter the market and old ones disappear and the quality of a commodity might undergo a change. If an index number is needed for comparing successive time periods - say, the periods 0, 1, 2, , n it is not necessary to use the fixed base 0. We may use the previous period as bae for comparing any time period and construct what are called link-indices. If we calculate price index number of every year with respect to base year as previous year and then multiply them to get the base index number, it is called chain index number. Year 0 1 2 3 n Calculation of Chain index numbers: Steps: 1. Express the figure for each period as percentage of the preceding period to obtain the link relatives(L.R.) 2. These link relatives are chained together by successive multiplication to get chain indices using the formula. Price Index P01 P12 P23 .. Pn-1,n Chain Base Index Po1=Po1 P02=P01*P12 P03=Po1*P12*P23 =P02*P23 P0k=P0,k-1*Pk-1,k

    CHAIN INDEX=Current years Link Relative (L.R.) * Preceding Years Chain Index 100 For example, using the above formula, we find the C.B.I. and also, calculate the link relatives. Year P0i Link Relatives C.B.I. 1995 100 1oo 100 1996 120 120 120 1997 122 101.667 122 1998 116 95.08197 116 1999 120 103.4482759 120

    The symbol used for such an index for comparing the prices of period k with those of period k-1 is Pk-1, k.

    Thus we construct n link indices i.e. by chaining, we obtain the chain indices as shown above in the table. These chain indices will not in general be equal to the corresponding fixed base indices unless the formula used meets the so-called circular test. Stated symbolically, the test is P01 * P12 * . * Pn-1, n * Pn0=1. FIXED BASE INDEX Sometimes, we may like to convert the chain base index into a fixed base index, in that case we use the formula: Current Years Fixed Base Index (F.B.I.) = Curent Years C.B.I. x Previous Years F.B.I. 100 For example, Commodity A B C D 2001 20 30 40 50 2002 30 60 120 70 2003 40 90 200 180 2004 20 40 80 100 LR1 100 100 100 100 LR2 150 200 300 140 LR3 133.34 150 166.67 257.14 LR4 50 44.44 40 55.5

    By:Keerat Singh 310 Isha Mital - 316

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