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Chapter 9: Q 12. (page 243)

Why do economists use index numbers to measure

the price level rather than the dollar value of goods?

Short Answer

Expert verified

Because of simplicity may be.

Step by step solution

01

Step 1. Definition

The price level is the average of current prices over the entire stretch of goods and services produced in an economy.

02

Step 2.  Explanation

Economists use index numbers to measure the price level rather than the dollar value of goods. This is because of the resins like for a huge basket of goods the dollar values will get large, huge and also messy and on the other hand index numbers are simple and makes it easier to compare various price levels over time.

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Most popular questions from this chapter

What is the difference between the price level and

the rate of inflation?

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?

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

Why does the “quality/new goods bias” arise if we

calculate the inflation rate based on a fixed basket of goods?

How do economists use a basket of goods and

services to measure the price level?
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