Index number enables us to calculate a single measure of change of a large number of items.
The index number are needed for the general and specific purpose, they are
(i) A Barometer Index number serve as a barometer for measuring the value of money. With the help of index number, we can easily make a comparison in the value of money in different years.
(ii) Importance for the Government The change in the value of money has a direct effect on
the public, so government adopts the fiscal and monetary policy according the results of index number.
(iii) Throws Light on Economic Condition Index number are very helpful in comparing the
economic condition of a particular group of two different periods.
(iv) Fixation of Wages or Policy Making The money wages can be revised according to the proportionate change in the cost of living. The cost of living index number guides the government and the executives for the fixation and revision of wages.