For a related discussion, see Price index
. For macroeconomic determination of the price level, see AD–AS model
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
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.
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
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.
SAMUELSON, P. A., NORDHAUS, W. D. Ekonomie.
19. vydání. Praha: NS Svoboda, 2013. 715 s. ISBN 978-80-205-0629-0
Last edited on 2 March 2021, at 15:53
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