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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 has been a typical range of inflation in the

U.S. economy in the last decade or so?

The index number representing the price level changes from 110 to 115 in one year, and then from 115 to 120 the next year. Since the index number increases by five each year, is five the inflation rate each year? Is the inflation rate the same each year? Explain your answer.

What is deflation?

The total price of purchasing a basket of goods in the United Kingdom over four years is year 1=£940, year 2=£970, year 3=£1000, and year 4=£1070. Calculate two price indices, one using year 1as the base year (set equal to 100) and the other using year 4as the base year (set equal to 100). Then, calculate the inflation rate based on the first price index. If you had used the other price index, would you get a different inflation rate? If you are unsure, do the calculation and find out.

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