Price level

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.

Significance

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 deflating GDP or some other measure.

Measuring price level

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]

References

  1. ^SAMUELSON, P. A., NORDHAUS, W. D.  19. vydání. Praha: NS Svoboda, 2013. 715 s. ISBN 978-80-205-0629-0.

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