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Jemshah
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Asked: 2023-01-21T05:50:12+00:00 In:

Explain five uses of index numbers in decision making. (8 marks) NOVEMBER 2022

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Explain five uses of index numbers in decision making. (8 marks) NOVEMBER 2022

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    1. Measuring inflation: Index numbers such as the Consumer Price Index (CPI) are used to measure changes in the cost of living over time. This information is used by policymakers to make decisions about monetary policy and by businesses to make decisions about pricing and wages.
    2. Assessing economic activity: Index numbers such as the Gross Domestic Product (GDP) and the Purchasing Managers’ Index (PMI) are used to measure the overall level of economic activity in an economy. This information is used by policymakers to make decisions about fiscal policy and by businesses to make decisions about investment and hiring.
    3. Evaluating stocks and bonds: Index numbers such as the S&P 500 and the Dow Jones Industrial Average are used to measure the performance of stock markets. Bond market indices such as the Barclays Capital US Aggregate Bond Index are used to measure the performance of bond markets. These indices are used by investors and analysts to make decisions about where to invest their money.
    4. Measuring performance: Index numbers such as the Human Development Index (HDI) and the Ease of Doing Business Index (EDBI) are used to measure the performance of countries or regions in a specific area. This information is used by policymakers and businesses to make decisions about where to invest resources and efforts.
    5. Benchmarking: Index numbers are used as a benchmark for evaluating the performance of a particular investment or portfolio. By comparing the performance of an investment to a relevant index, investors and analysts can assess whether the investment is performing well or underperforming.
    6. Identifying trends: Index numbers can be used to identify trends in a particular market or economy. By tracking changes in an index over time, analysts can detect patterns that can be used to make predictions about future market movements or economic conditions.
    7. Assessing Consumer sentiment: Index numbers such as Consumer Confidence Index (CCI) are used to measure how consumers feel about the economy and their own financial situation. This information is used by businesses and policymakers to make decisions about consumption, investment and how to adjust to the market.
    8. Assessing Industry performance: Index numbers such as the S&P BSE SENSEX and NIFTY are used to measure the performance of a particular industry or sector. This information is used by investors and analysts to make decisions about which industries or sectors to invest in.
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