Percentages, Ratios and Index Numbers in Economic Analysis

Economic data is very often expressed and compared using percentages, ratios, and index numbers, because these tools allow meaningful comparison across different time periods, regions, or categories that raw absolute figures cannot provide directly.

A percentage change measures the proportionate change in a variable between two periods:

A ratio compares two quantities directly, expressed as $a:b$ or as a fraction $a/b$ — used, for instance, in a capital-output ratio or a price ratio between two goods.

An index number is a specialised statistical tool that measures the average percentage change in a group of related variables (such as the prices of a basket of goods) between a chosen BASE period (assigned an index value of 100) and a later CURRENT period. The simplest form, the Simple Aggregative Price Index, is computed as:

$\text{Price Index}=\dfrac{\sum P_{1}}{\sum P_{0}}\times100$ …