For a related discussion, see Price index. For macroeconomic determination of the price level, see AD–AS model.
The general price level is a hypothetical measure of overall prices for some set of goods and services (the consumer basket), in an economy or monetary union during a given interval (generally one day), normalized relative to some base set. Typically, the general price level is approximated with a daily price index, normally the Daily CPI. The general price level can change more than once per day during hyperinflation.
The classical dichotomy is the assumption that there is a relatively clean distinction between overall increases or decreases in prices and underlying, “nominal” economic variables. Thus, if prices overall increase or decrease, it is assumed that this change can be decomposed as follows:
Given a set of goods and services, the total value of transactions in at time is
where
represents the quantity of at time
represents the prevailing price of at time
represents the “real” price of at time
is the price level at time
The general price level is distinguished from a price index in that the existence of the former depends upon the classical dichotomy, while the latter is simply a computation, and many such will be possible regardless of whether they are meaningful.
Significanceedit
If, indeed, a general price level component could be distinguished, then it would be possible to measure the difference in overall prices between two regions or intervals. For example, the inflation rate could be measured as
and “real” economic growth or contraction could be distinguished from mere price changes by deflatingGDP or some other measure.
Measuring price leveledit
Applicable indices are the consumer price index (CPI), Default Price Deflator, and the Producer Price Index.
Price indices not only affect the rate of inflation, but are also part of real output and productivity.[1]
^SAMUELSON, P. A., NORDHAUS, W. D. Ekonomie. 19. vydání. Praha: NS Svoboda, 2013. 715 s. ISBN978-80-205-0629-0.
Sourcesedit
McCulloch, James Huston (1 January 1982). Money and Inflation: A Monetarist Approach. Academic Press. ISBN978-0-12-483051-6.
Mises, Ludwig Heinrich Edler von; Human Action: A Treatise on Economics (1949), Ch. XVII “Indirect Exchange”, §4. “The Determination of the Purchasing Power of Money”.
February 15, 2024
price, level, related, discussion, price, index, macroeconomic, determination, price, level, model, general, price, level, hypothetical, measure, overall, prices, some, goods, services, consumer, basket, economy, monetary, union, during, given, interval, gener. For a related discussion see Price index For macroeconomic determination of the price level see AD AS model The general price level is a hypothetical measure of overall prices for some set of goods and services the consumer basket in an economy or monetary union during a given interval generally one day normalized relative to some base set Typically the general price level is approximated with a daily price index normally the Daily CPI The general price level can change more than once per day during hyperinflation Contents 1 Theoretical foundation 2 Significance 3 Measuring price level 4 See also 5 References 6 SourcesTheoretical foundation editThe classical dichotomy is the assumption that there is a relatively clean distinction between overall increases or decreases in prices and underlying nominal economic variables Thus if prices overall increase or decrease it is assumed that this change can be decomposed as follows Given a set C displaystyle C nbsp of goods and services the total value of transactions in C displaystyle C nbsp at time t displaystyle t nbsp is c C p c t q c t c C P t p c t q c t P t c C p c t q c t displaystyle sum c in C p c t cdot q c t sum c in C P t cdot p c t cdot q c t P t cdot sum c in C p c t cdot q c t nbsp where q c t displaystyle q c t nbsp represents the quantity of c displaystyle c nbsp at time t displaystyle t nbsp p c t displaystyle p c t nbsp represents the prevailing price of c displaystyle c nbsp at time t displaystyle t nbsp p c t displaystyle p c t nbsp represents the real price of c displaystyle c nbsp at time t displaystyle t nbsp P t displaystyle P t nbsp is the price level at time t displaystyle t nbsp The general price level is distinguished from a price index in that the existence of the former depends upon the classical dichotomy while the latter is simply a computation and many such will be possible regardless of whether they are meaningful Significance editIf indeed a general price level component could be distinguished then it would be possible to measure the difference in overall prices between two regions or intervals For example the inflation rate could be measured as P t 1 P t 0 P t 0 t 1 t 0 displaystyle frac P t 1 P t 0 P t 0 t 1 t 0 nbsp and real economic growth or contraction could be distinguished from mere price changes by deflating GDP or some other measure G D P t 1 P t 1 G D P t 0 P t 0 displaystyle frac GDP t 1 P t 1 frac GDP t 0 P t 0 nbsp Measuring price level editApplicable indices are the consumer price index CPI Default Price Deflator and the Producer Price Index Price indices not only affect the rate of inflation but are also part of real output and productivity 1 See also edit nbsp Economics portalPrice index Equation of exchange Quantity theory of money Wage levelReferences edit SAMUELSON P A NORDHAUS W D Ekonomie 19 vydani Praha NS Svoboda 2013 715 s ISBN 978 80 205 0629 0 Sources editMcCulloch James Huston 1 January 1982 Money and Inflation A Monetarist Approach Academic Press ISBN 978 0 12 483051 6 Mises Ludwig Heinrich Edler von Human Action A Treatise on Economics 1949 Ch XVII Indirect Exchange 4 The Determination of the Purchasing Power of Money Retrieved from https en wikipedia org w index php title Price level amp oldid 1185191281, wikipedia, wiki, book, books, library,
