Simple Aggregate Price Index Number

A simple aggregate price index number is a measure used to compare the average price level of goods or services in the current period to the average price level in the base period. It is expressed as a percentage and provides an indication of how prices have changed over time.

Calculation
To calculate the simple aggregate price index number, the sum of prices in the current period is divided by the sum of prices in the base period. The result is then multiplied by 100 to express it as a percentage.

Formula:
Simple Aggregate Price Index Number = (Sum of Prices in Current Period / Sum of Prices in Base Period) * 100

Example:
Let's say we want to calculate the simple aggregate price index number for a basket of goods in two periods - the current period and the base period. In the current period, the sum of prices is $500, and in the base period, the sum of prices is $400.

Using the formula, we can calculate the simple aggregate price index number:
Simple Aggregate Price Index Number = ($500 / $400) * 100 = 125

This means that the average price level of the basket of goods in the current period is 125% of the average price level in the base period.

Importance
The simple aggregate price index number is an important economic indicator that helps measure inflation or deflation. It provides information on the overall price changes in an economy, which can have significant impacts on consumer purchasing power, business costs, and government policies.

Limitations
While the simple aggregate price index number provides a basic measure of price changes, it has some limitations. It does not take into account changes in the quantities of goods or services consumed, which can affect the overall cost of living. Additionally, it may not capture changes in quality or the introduction of new products.

Conclusion
In conclusion, the simple aggregate price index number is a percentage measure used to compare the average price level of goods or services in the current period to a base period. It is calculated by dividing the sum of prices in the current period by the sum of prices in the base period and multiplying by 100. This measure is important for understanding inflation or deflation and has its limitations in capturing changes in quantities and quality.