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Chapter 9: Q 11. (page 243)

How do economists use a basket of goods and

services to measure the price level?

Short Answer

Expert verified

By using various methods economists do this task.

Step by step solution

01

Step 1. Definition

Price levels are constituted by index number while the rate of inflation is the rate of growth of price level.

02

Step 2. 

Economists measure the price level by a method like first they give the weights to the goods and services that people buy on actual quantities and then they compute their weighted average of individual baskets.

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Most popular questions from this chapter

Within 1or 2percentage points, what has the U.S. inflation rate been during the last 20years? Draw a graph to show the data.

Compute the inflation rate for fruit prices from 2001 to 2004.

Table 9.4 shows the fruit prices that the typical college student purchased from 2001 to 2004. What is the amount spent each year on the “basket” of fruit with the quantities shown in column 2?

Rosalie the Retiree knows that when she retires in 16years, her company will give her a one-time payment of \(20,000. However, if the inflation rate is 6%per year, how much buying power will that \)20,000have when measured in today’s dollars?

What is indexing?
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