Q.Index numbers are very significant/important in economics.

Agree. Index numbers are important because they measure changes over time (economic barometers), help frame government policy, guide wage and dearness-allowance adjustments, study trends and forecast, and compare cost of living across periods and places. Hence they are very significant in economics.

An index number is a statistical device that measures relative changes in a variable or group of variables over time or place. Its significance in economics justifies agreeing with the statement:

1. Economic barometer: Index numbers indicate the general economic condition of a country — trends in prices, production, trade and employment — just as a barometer indicates weather.

2. Help in framing policy: Governments use price and production indices to frame monetary, fiscal, trade and wage policies.

3. Basis for wage and dearness-allowance adjustment: The cost-of-living (consumer price) index is used to revise wages and dearness allowance so that real income is protected against inflation.

4. Measure changes in the value of money: Index numbers show changes in the purchasing power of money and the extent of inflation or deflation.

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