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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

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

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

Why do you think the U.S. experience with inflation over the last 50years has been so much milder than in many other countries?

Identify several parties likely to be helped and hurt

by inflation.

If a government gains from unexpected inflation when it borrows, why would it choose to offer indexed bonds?

How to Measure Changes in the Cost of Living introduced a number of different price indices. Which price index would be best to use to adjust your paycheck for inflation?
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