Give example to calculate the price level, Macroeconomics

Assignment Help:

Give example to calculate the price level

Imagine that we have created a particular basket of services and goods. We calculate price level at four different points in time during 2008 without changing the content of the basket (the weights are unchanged). Assume that we find following time series for price level:

Point in time

Jan 1, 2008

Feb 1, 2008

March 1, 2008

April 1, 2008

Price level

60 770

62 400

62 850

62 850

Reason for choosing 607.70 is that we want index to be equal to 100 for the first point in time. Advantage of having an index which starts with 100 is that we would have a clearer picture of the evolution of prices. We may, for instance, immediately determine that prices rose by 2.68% on average in January and by 3.42% during 3 months January to March.

Note that percentage change of original price level and percentage change of the price index is the same. Percentage change won’t depend on which point in time we select as our “base” (giving price index a value of 100). Using price index, percentage change during January is (62400 – 60770)/60770 = 2, 68% that is exactly the same as percentage change of price index.


Related Discussions:- Give example to calculate the price level

Assumptions of the AS-AD model, Q. Assumptions of the AS-AD model? The ...

Q. Assumptions of the AS-AD model? The most significant change we make going from IS-LM model to AS-AD model is to allow P to be endogenous. As P was constant in IS-LM model, w

Gross domestic production, why is imports subtracted from the expenditure a...

why is imports subtracted from the expenditure approach

Classical model, why and how is price level determined by the monetary sect...

why and how is price level determined by the monetary sector in the classical model?

Public Sector, What is top marginal rate of taxation?

What is top marginal rate of taxation?

State about the international capital flow, State about the international c...

State about the international capital flow An international capital flow is defined as movement of money for the purpose of speculation or investment between countries. It inc

Opportunity Costs, Comparative if Person can make 15 wristbands and hour an...

Comparative if Person can make 15 wristbands and hour and 3 potholders. What is the comparative advantage? If same person works 20 hours a week graph the possible combinations sh

Marginal product of labor and marginal product, How Walmart''s marginal pr...

How Walmart''s marginal product labor related to its marginal product?

Neoclassical view, Roles of government in controlling market forces under n...

Roles of government in controlling market forces under neoclassical view

GDP, HOW MARRIAGE AFFECTS GDP

HOW MARRIAGE AFFECTS GDP

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd