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    What is an index? Why do we use indices?

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    What is an index? Why do we use indices? The Consumer Price Index is mentioned in the text, but I believe it is a question as to what index means in general?

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    Solution Preview

    An index is a weighted average, or a single number calculated from a set of prices or of quantities.

    Let me first present to you two examples of indices.

    1) S&P 500

    S&P 500 is a weighted stock index (or an average of 500 stocks), the reason that it is weighted is because some firms are larger (a greater market capitalization) and some are smaller. Say if you have two firms, A is worth ...

    Solution Summary

    The expert determines what an index is. Why we use indices is given