How index numbers are used to measure changes in the price level and changes in other economic variables
Economists use index numbers to track how things like prices or national output change over time. The Consumer Prices Index (CPI) is the main tool the UK uses to measure inflation.
Formula
Inflation rate = ((CPI this year − CPI last year) ÷ CPI last year) × 100
Real World
When the UK CPI rose from 123.4 in October 2021 to 137.1 in October 2022, the calculated inflation rate of 11.1% was the highest in 40 years, directly triggering the Bank of England's fastest sequence of interest rate rises since the 1980s.
Exam Focus
Distinguish between a rising price level (inflation) and a rising index value — the rate of inflation falls even if the index is still increasing.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
How well did you know this?