Write a short notes on Deflating and Splicing.
One of the most useful application of price indices is to adjust series of rupee figures for changes in level of prices. This is known as deflation. The figures are restated in constant rupees. With the help of deflation, a Series of money wages or incomes can be corrected for price changes to find out the level of real wages or incomes. The following formula is used to find out the real wages or income. Real wage/income = Money wage/Income / Price Index x 100.
If we are to find out the indices of the real wages/incomes, we take the real wage/income of the first year as the base and find out the indices. Example:
Sometimes the construction of an index number series is discontinued for the reason of its base becoming too old. A new set of index
numbers may be computed with some recent year as the base. It may be desired to connect the new indices with the old ones. The statistical procedure which connects an old index number series with a new one is called splicing.