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Index Number and Reference Value

Author: Jonathan Osters

Source: Milk photo taken by Joseph Gearin, CPI Index, Public Domain: http://economy.typepad.com/the_economy/2006/01/index.html

Video Transcript
Terms to Know
Consumer Price Index

An index published by the US Bureau of Labor Statistics that shows the change in the price of many different goods or services in the United States. It provides a measure of purchasing power.

Index Number

A way to measure the relative change in a value, usually the price of a good or service, over time. If the index number is over 100, that means the price has increased. If the price has decreased, then the index number will be less than 100.

Inflation

A relative increase in the price of a good or service over time. A person will need to pay more to receive the same good or service than they did at a previous point in time.

Reference Value

An arbitrarily chosen starting value for an index. It is assigned an index number of 100.

Formulas to Know
Index Number

fraction numerator n e w space v a l u e over denominator r e f e r e n c e space v a l u e end fraction cross times 100