Price Indexes

Gross Domestic Product Remember: THE MARKET VALUE OF ALL FINAL GOODS AND SERVICES PRODUCED IN A YEAR WITHIN A COUNTRY.

Price Indexes But how do we know how much of the growth of the GDP is due to inflation, and how much is due to the growth of the economy? Price indexes answer this question

Price Indexes Price Index: = a measure of the average price level in an economy

Price Indexes Price Indexes are used to: Measure inflation 2) Measure the growth of the real economy

Price Indexes Price Index = price of market basket in a specific year * (100) price of same market basket in base year

Types of Price Indexes A) GDP Price Deflator B) Consumer Price Index C) Producer Price Index

GDP PRICE INDEX A very broad measure of the prices of goods and services included in the GDP. The most accurate of the price indexes.

CONSUMER PRICE INDEX A measure of the average price of goods and services purchased by the typical household.

PRODUCER PRICE INDEX A measure of average price received by producers (businesses). Also known as the wholesale price index.

Nominal vs. Real GDP Nominal GDP = output in terms of the current dollar value Real GDP = output in terms of constant price