Q. 1. Define Index numbers.

Ans. Index numbers are devices for measuring differences in the magnitude of a group of related variables. - Croxton & Cowden.

The cost of living index numbers indicate whether the real wages are rising or falling, money wages remaining unchanged.
Methods to construct the cost of living index numbers:

• Simple Aggregate method
• Weighted Aggregate method
• Method of Weighted Relatives

Simple Aggregate method

Cost of living index number = (å P₁/å P₀) X 100
Where:
P₁ = Price of current year
P₀ = Price of base year