2.

2 Indices

In the previous section, you used

tables and graphs of frequencies to
summarize data. Indices are another
way to summarize data and
recognize trends. An index relates
the value of a variable (or group of
variables) to a base level, which is
often the value on a particular date.
The base level is set so that the
index produces numbers that are
easy to understand and compare.
Indices are used to report on a wide
variety of variables, including prices
and wages, ultraviolet levels in
sunlight, and even the readability
of textbooks.

INVESTIGATE & INQUIRE: Consumer Price Index

The graph below shows Statistics Canada’s

Unadjusted Consumer Price Index

118
consumer price index (CPI), which tracks 116
the cost of over 600 items that would be 114
(1992 = 100)

purchased by a typical family in Canada. 112

For this chart, the base is the cost of the 110
same items in 1992. 108
106
104
M J J J J J M
1996 1997 1998 1999 2000 2001

1. What trend do you see in this graph? Estimate the annual rate of increase.
2. Estimate the annual rate of increase for the period from 1992 to 1996.
Do you think the difference between this rate and the one from 1996 to
2001 is significant? Why or why not?
3. What was the index value in February of 1998? What does this value tell
you about consumer prices at that time?

104 MHR • Statistics of One Variable

 4. What would be the best way to estimate what the consumer price index
will be in May of 2003? Explain your reasoning.
5. Explain how the choice of the vertical scale in the graph emphasizes
changes in the index. Do you think this emphasis could be misleading?
Why or why not?

The best-known Canadian business index is the S&P/TSX Composite Index,

managed for the Toronto Stock Exchange by Standard & Poor’s Corporation.
Introduced in May, 2002, this index is a continuation of the TSE 300 Composite
Index®, which goes back to 1977. The S&P/TSX Composite Index is a measure
of the total market value of the shares of over 200 of the largest companies traded
on the Toronto Stock Exchange. The index is the current value of these stocks
divided by their total value in a base year and then multiplied by a scaling factor.
When there are significant changes (such as takeovers or bankruptcies) in any of
the companies in the index, the scaling factor is adjusted so that the values of the
index remain directly comparable to earlier values. Note that the composite index
weights each company by the total value of its shares (its market capitalization)
rather than by the price of the individual shares. The S&P/TSX Composite Index
usually indicates trends for major Canadian corporations reasonably well, but it
does not always accurately reflect the overall Canadian stock market.

Time-series graphs are often used to show how indices change over time.
Such graphs plot variable values versus time and join the adjacent data points
with straight lines.

Example 1 Stock Market Index

The following table shows the TSE 300 Composite Index® from 1971 to 2001.
TSE 300 Index (1975 = 1000)

10 000

8000

6000

4000

2000

0
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001

a) What does the notation “1975 = 1000” mean?

b) By what factor did the index grow over the period shown?
c) Estimate the rate of growth of the index during the 1980s.

2.2 Indices • MHR 105

Solution

a) The notation indicates that the index shows the stock prices relative to what
they were in 1975. This 1975 base has been set at 1000. An index value of
2000 would mean that overall the stocks of the 300 companies in the index
are selling for twice what they did in 1975.

b) From the graph, you can see that the index increased from about 1000 in 1971
to about 10 000 in 2001. Thus, the index increased by a factor of approximately
10 over this period.

c) To estimate the rate of growth of the index during the 1980s, approximate
the time-series graph with a straight line during that
10-year interval. Then, calculate the slope of
the line.
www.mcgrawhill.ca/links/MDM12
rise
m= 
run For more information on stock indices, visit the above
3700 − 1700 web site and follow the links. Write a brief
=⋅  description of the rules for inclusion in
10
the various market indices.
= 200

The TSE 300 Composite Index® rose about 200 points a year during the 1980s.

Statistics Canada calculates a variety of carefully researched economic indices.

For example, there are price indices for new housing, raw materials, machinery
and equipment, industrial products, and farm products. Most of these indices
are available with breakdowns by province or region and by specific categories,
such as agriculture, forestry, or manufacturing. Statisticians, economists, and the
media make extensive use of these indices. (See section 1.3 for information on
how to access Statistics Canada data.)

The consumer price index (CPI) is the most widely reported of these
economic indices because it is an important measure of inflation. Inflation is Data in Action
a general increase in prices, which corresponds to a decrease in the value of Statistics Canada
money. To measure the average change in retail prices across Canada, usually publishes the
consumer price index
Statistics Canada monitors the retail prices of a set of over 600 goods and for each month in
services including food, shelter, clothing, transportation, household items, the third week of the
health and personal care, recreation and education, and alcohol and tobacco following month.
products. These items are representative of purchases by typical Canadians Over 60 000 price
and are weighted according to estimates of the total amount Canadians spend quotations are
collected for each
on each item. For example, milk has a weighting of 0.69% while tea has a
update.
weighting of only 0.06%.

106 MHR • Statistics of One Variable

Example 2 Consumer Price Index
The following graph shows the amount by which the consumer price index
changed since the same month of the previous year.
Percent Change in CPI

0
May J J J J J May
1996 1997 1998 1999 2000 2001

a) What does this graph tell you about changes in the CPI from 1996 to 2001?
b) Estimate the mean annual change in the CPI for this period.

Solution
a) Note that the graph above shows the annual changes in the CPI, unlike
the graph on page 104, which illustrates the value of the CPI for any
given month. From the above graph, you can see that the annual change
in the CPI varied between 0.5% and 4% from 1996 to 2001. Overall, Project
there is an upward trend in the annual change during this period. Prep

b) You can estimate the mean annual change by drawing a horizontal line If your statistics
such that the total area between the line and the parts of the curve project examines
above it is approximately equal to the total area between the line and how a variable
the parts of the curve below it. As shown above, this line meets the changes over time,
y-axis near 2%. a time-series graph
may be an effective
Thus, the mean annual increase in the CPI was roughly 2% from 1996
way to illustrate
to 2001.
your findings.

The consumer price index and the cost of living index are not
quite the same. The cost of living index measures the
cost of maintaining a constant standard of living. If
consumers like two similar products equally well, www.mcgrawhill.ca/links/MDM12
their standard of living does not change when they
switch from one to the other. For example, if you For more information about Statistics Canada
indices, visit the above web site and follow the
like both apples and pears, you might start buying
links to Statistics Canada.
more apples and fewer pears if the price of pears
went up while the price of apples was unchanged. Thus,
your cost of living index increases less than the consumer
price index does.

2.2 Indices • MHR 107

Indices are also used in many other fields, including science, sociology,
medicine, and engineering. There are even indices of the clarity of writing.

Example 3 Readability Index

The Gunning fog index is a measure of the readability of prose. This index
estimates the years of schooling required to read the material easily.

Gunning fog index = 0.4(average words per sentence + percent “hard” words)

where “hard” words are all words over two syllables long except proper nouns,
compounds of easy words, and verbs whose third syllable is ed or es.
a) Calculate the Gunning fog index for a book with an average sentence
length of 8 words and a 20% proportion of hard words.
b) What are the advantages and limitations of this index?

Solution
a) Gunning fog index = 0.4(8 + 20)
= 11.2
The Gunning fog index shows that the book is written at a level Project
appropriate for readers who have completed grade 11. Prep

b) The Gunning fog index is easy to use and understand. It generates a You may want to use
grade-level rating, which is often more useful than a readability rating an index to
on an arbitrary scale, such as 1 to 10 or 1 to 100. However, the index summarize and
assumes that bigger words and longer sentences always make prose compare sets of data
harder to read. A talented writer could use longer words and sentences in your statistics
and still be more readable than writers who cannot clearly express their project.
ideas. The Gunning fog index cannot, of course, evaluate literary merit.

www.mcgrawhill.ca/links/MDM12

Visit the above web site to find a link to a

readability-index calculator. Determine the reading
level of a novel of your choice.

108 MHR • Statistics of One Variable

 Key Concepts

• An index can summarize a set of data. Indices usually compare the values of a
variable or group of variables to a base value.

• Indices have a wide variety of applications in business, economics, science, and

other fields.

• A time-series graph is a line graph that shows how a variable changes over time.

• The consumer price index (CPI) tracks the overall price of a representative
basket of goods and services, making it a useful measure of inflation.

Communicate Your Understanding

1. What are the key features of a time-series graph?

2. a) Name three groups who would be interested in the new housing price index.
b) How would this information be important for each group?

3. Explain why the consumer price index is not the same as the cost of living index.

Practise B
A 3. Refer to the graph of the TSE 300
Composite Index® on page 105.
1. Refer to the consumer price index graph on
page 104. a) When did this index first reach five times
its base value?
a) By how many index points did the CPI
increase from January, 1992 to January, b) Estimate the growth rate of the index
2000? from 1971 to 1977. What does this
growth rate suggest about the Canadian
b) Express this increase as a percent.
economy during this period?
c) Estimate what an item that cost
c) During what two-year period did the index
i) $7.50 in 1992 cost in April, 1998 grow most rapidly? Explain your answer.
ii) $55 in August, 1997 cost in May, 2000 d) Could a straight line be a useful
mathematical model for the TSE 300
Apply, Solve, Communicate
Composite Index®? Explain why or why
2. a) Explain why there is a wide variety of not.
items in the CPI basket.
4. Communication
b) Is the percent increase for the price of
a) Define inflation.
each item in the CPI basket the same?
Explain. b) In what way do the consumer price index
and the new housing price index provide
a measure of inflation?

2.2 Indices • MHR 109

 c) How would you expect these two indices b) Describe how the overall trend in energy
to be related? costs compares to that of the CPI for the
d) Why do you think that they would be period shown.
related in this way? c) What insight is gained by removing the
energy component of the CPI?
5. Application Consider the following time-
d) Estimate the overall increase in the
series graph for the consumer price index.
energy-adjusted CPI for the period shown.
Consumer Price Index

e) Discuss how your result in part d) compares

to the value found in part b) of Example 2.
(1992 = 100)

100

50 7. François’ agent wants to bargain for a better

pte
ha salary based on François’ statistics for his

r
0 first five seasons with the team.

m
P
1980 1984 1988 1992 1996 2000 r
oble
a) Produce a time-series graph for François’
a) Identify at least three features of this goals, assists, and points over the past
graph that are different from the CPI five years.
graph on page 104.
b) Calculate the mean number of goals,
b) Explain two advantages that the graph assists, and points per game played
shown here has over the one on page 104. during each of François’ five seasons.
c) Explain two disadvantages of the graph c) Generate a new time-series graph based
shown here compared to the one on on the data from part b).
page 104.
d) Which time-series graph will the agent
d) Estimate the year in which the CPI was likely use, and which will the team’s
at 50. manager likely use during the contract
e) Explain the significance of the result in negotiations? Explain.
part d) in terms of prices in 1992. e) Explain the method or technology that
you used to answer parts a) to d).
6. Application The following graph illustrates
the CPI both with and without energy price 8. Aerial surveys of wolves in Algonquin Park
changes. produced the following estimates of their
population density.
4.0
Year Wolves/100 km2
Percent Change in CPI

3.0
1988–89 4.91
All Items
1989–90 2.47
2.0 1990–91 2.80
1991–92 3.62
1.0
All Items 1992–93 2.53
Excluding Energy
1993–94 2.23
0
May J J J J May 1994–95 2.82
1997 1998 1999 2000 2001
1995–96 2.75
a) How is this graph different from the one 1996–97 2.33
on page 107? 1997–98 3.04
1998–99 1.59

110 MHR • Statistics of One Variable

 a) Using 1988–89 as a base, construct an 12. Communication Use the Internet, a library,
index for these data. or other resources to research two indices
b) Comment on any trends that you not discussed in this section. Briefly describe
observe. what each index measures, recent trends in
the index, and any explanation or rationale
9. Use Statistics Canada web sites or other for these trends.
sources to find statistics for the following
and describe any trends you notice. 13. Inquiry/Problem Solving The pictograph
below shows total greenhouse-gas emissions
a) the population of Canada
for each province and territory in 1996.
b) the national unemployment rate
= 638
c) the gross domestic product = 50 200
= 99 800
10. Inquiry/Problem Solving = 149 500
a) Use data from E-STAT or other sources
= 199 100
to generate a time-series graph that
kilotonnes of
shows the annual number of crimes in CO2 equivalent
Canada for the period 1989−1999. If
using E-STAT, look in the Nation section
under Justice/Crimes and Offences.
b) Explain any patterns that you notice.
c) In what year did the number of crimes
peak?
d) Suggest possible reasons why the number a) Which two provinces have the highest
of crimes peaked in that year. What levels of greenhouse-gas emissions?
other statistics would you need to b) Are the diameters or areas of the circles
confirm whether these reasons are proportional to the numbers they
related to the peak in the number of represent? Justify your answer.
crimes? c) What are the advantages and
disadvantages of presenting these data
11. a) Use data from E-STAT or other sources
as a pictograph?
to generate a time-series graph that
shows the number of police officers in d) Which provinces have the highest levels
Canada for the period 1989−1999. If of greenhouse-gas emissions per
using E-STAT, look in the Nation section geographic area?
under Justice/Police services. e) Is your answer to part d) what you would
b) In what ways are the patterns in these have expected? How can you account for
data similar to the patterns in the data such relatively high levels in these areas?
in question 10? In what ways are the f) Research information from E-STAT
patterns different? or other sources to determine the
c) In what year did the number of police greenhouse-gas emissions per person
officers peak? for each province.
d) Explain how this information could affect
your answer to part d) of question 10.

2.2 Indices • MHR 111

 ACHIEVEMENT CHECK a) Construct a Pareto chart for these data.
b) Describe the similarities and differences
Knowledge/ Thinking/Inquiry/
Communication Application
Understanding Problem Solving between a Pareto chart and other
frequency diagrams.
14. The graph below shows the national
unemployment rate from January, 1997, Method Number of Respondents
to June, 2001. Automobile: alone 26
% Automobile: car pool 35
10.0
Bus/Streetcar 52
9.5
Train 40
Unemployment Rate
Seasonally Adjusted

9.0
8.5 Bicycle/Walking 13
8.0
7.5
7.0
6.5
6.0 www.mcgrawhill.ca/links/MDM12
J J J J J M
1997 1998 1999 2000 2001 For more information about Pareto charts, visit the above
web site and follow the links. Give two examples of
a) Describe the overall trend for the period
situations where you would use a Pareto chart.
shown. Explain your reasoning.
b) When did the unemployment rate reach
its lowest level?
c) Estimate the overall unemployment rate 16. Pick five careers of interest to you.
for the period shown. a) Use resources such as CANSIM II,
d) Explain what the term seasonally adjusted E-STAT, newspapers, or the Internet to
means. obtain information about entry-level
income levels for these professions.
e) Who is more likely to use this graph in
an election campaign, the governing b) Choose an effective method to present
party or an opposing party? Explain. your data.
f) How might an opposing party produce a c) Describe any significant information
graph showing rising unemployment you discovered.
without changing the data? Why would
17. a) Research unemployment data for
they produce such a graph?
Ontario over the past 20 years.
b) Present the data in an appropriate form.
C c) Conduct additional research to account
15. A Pareto chart is a type of frequency diagram for any trends or unusual features of the
in which the frequencies for categorical data data.
are shown by connected bars arranged in d) Predict unemployment trends for both
descending order of frequency. In a random the short term and the long term.
survey, commuters listed their most Explain your predictions.
common method of travelling to the
downtown of a large city.

112 MHR • Statistics of One Variable