Book contents
- Frontmatter
- Brief Contents
- Contents
- Acknowledgments
- To the Student
- To the Teacher
- Part I Introduction
- Part II The National Accounts
- 2 The National Accounts and the Structure of the Economy
- 3 Understanding Gross Domestic Product
- 4 Measuring Prices and Inflation
- Part III Trends and Cycles
- Part IV Financial Markets
- Part V Aggregate Supply
- Part VI Aggregate Demand
- Part VII Macroeconomic Dynamics
- Part VIII Macroeconomic Policy
- Part IX Macroeconomic Data
- Symbols
- Glossary
- Guide to Online Resources
- Index
- References
4 - Measuring Prices and Inflation
from Part II - The National Accounts
Published online by Cambridge University Press: 05 June 2012
Book contents
- Frontmatter
- Brief Contents
- Contents
- Acknowledgments
- To the Student
- To the Teacher
- Part I Introduction
- Part II The National Accounts
- 2 The National Accounts and the Structure of the Economy
- 3 Understanding Gross Domestic Product
- 4 Measuring Prices and Inflation
- Part III Trends and Cycles
- Part IV Financial Markets
- Part V Aggregate Supply
- Part VI Aggregate Demand
- Part VII Macroeconomic Dynamics
- Part VIII Macroeconomic Policy
- Part IX Macroeconomic Data
- Symbols
- Glossary
- Guide to Online Resources
- Index
- References
Summary
As we have seen in the last two chapters, a measure of the general price level is needed to convert nominal quantities to real quantities and to estimate the rate of inflation. We begin this chapter with the question, how can information about millions of prices in the economy be reduced into a simpler, more manageable index? First, we look at the main types of price indices. How are they calculated? What are the advantages and disadvantages of each type? We conclude with a discussion of the price indices most commonly used in the formulation and execution of economic policy.
In Chapter 2, we used a price index , the GDP (implicit price) deflator, as the preferred measure of the general level of prices or the value of money. The GDP deflator is not the only price index. In this chapter we shall learn about a variety of price indices and how they are constructed.
The GDP deflator in Chapter 2 served two purposes. First, we typically care about real rather than nominal quantities: real GDP, real consumption, real investment, real government expenditure. In Chapters 2 and 3 we saw that real GDP and its components are not observed directly. Rather, the national-income accountants must first measure market or nominal GDP in current dollars and then use a price index to convert it into real or constant dollars. Second, we sometimes care about how fast prices are changing. The growth rate of a price index, the rate of inflation, provides a measure.
Information
- Type
- Chapter
- Information
- Applied Intermediate Macroeconomics , pp. 114 - 136Publisher: Cambridge University PressPrint publication year: 2011
References
Retrospective: Price Indices and General Exchange Values
Journal of Economic Perspectives
12
1998
197
CrossRefGoogle Scholar
A Comparison of the CPI and the PCE Price Index
Federal Reserve Bank of Kansas City Economic Review
84
1999
15
Google Scholar
1996
Bias in the CPI: ‘Roughly Right or Precisely Wrong
Federal Reserve Bank of San Francisco Economic Letter
97
1997
Google Scholar
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