Questions tagged [price-level]

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How would an Income Tax Cut affect Money Supply and/or Money Demand in a Country in a Recession with Falling Price Levels

How would an Income Tax Cut affect Money Supply and/or Money Demand in a Country in a Recession with Falling Price Levels. How would Interest Rates be affected and what affects would the change in ...
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3 votes
1 answer
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About the 9 tests on Index number theory to evaluate the efficency of the different types of price indexes

Correct me if I'm wrong, I've seen a section in Wikipedia about Index number theory and I've understand it as "if an index x (Laspeyres, Paasche, etc.) satisfies all of this test, then it's 100% ...
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4 votes
1 answer
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Should Prices (or Price Indices) be modelled with deterministic trend?

I always face a dilemma on whether to assume prices to have a time trend or not while modelling. It is also partly a statistics problem. Let me explain. Assume I have time series, $y_t$ of price of a ...
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What's the logic behind dividing rental price of capital and wage rate by price level?

I've just started to learn macroeconomics and I think even the teachers can't get what's the price level and why we divide by it in order to find for example real economic profits. Textbook says "...
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8 votes
4 answers
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Should selling price depend on product quality or on work to produce the product if both not in positive correlation?

I am a Natural Science student and read a little about economics. I am not sure this question is related to economics or not, decided to give it a try. Recently, I am looking for printing service. ...
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Economics of exclusive supercars with limited number of items sold

I understand that rarity increases price, and that maximum profit may not be to sell every car you can but still the production of supercars looks weird to me. T.50 production will be 100. Allegedly ...
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2 answers
131 views

What effect has the 30% increase in money supply from Feb-June of 2020 had?

I commented on a previous question that this is probably a better one. Old question Generally speaking, how has the increase in money supply resulting from the CARES act stimulus package affected the ...
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how to adjust price data due to clock changes?

I'm trying to analyze the hourly price variation of the electricity market. However, because of clock changes, due to daylight saving time, we have a missing hour in March and an additional hour in ...
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Considering existence of firms with sticky prices of goods, why are we sure that SRAS will be upward slopping?

One of theories that explains why the SRAS is upward slopping is the theory of sticky prices. For an example, suppose there is inflation. In the short run it will take different time for firms to ...
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How will economy find long-term equilibrium in AD-AS model in case of a negative supply shock?

Let's suppose that negative supply shock happened that affected SRAS, but not LRAS. Let's also assume that previously there was long-run equilibrium at point $A$. Due to negative supply shock SRAS ...
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Why doesn't AD curve self-correct to higher price level in LR?

In textbooks it is usually taught that once actual price level is higher than expected, short-run aggregate supply will eventually shift up so that new expected price level is closer to the actual ...
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A hypothetical question on neutrality of money

Let's assume that we start with an economy producing two goods, A and B, with each priced $100. Each good is weighted using the same quantity, so CPI equals 100. Nominal wage is also 100 dollars. An ...
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Data for CGE experiments?

Does anyone know of any open-source U.S. data sets in a format appropriate to whole-economy CGE econometric modeling, i.e. data sets covering the entire economy, divided into at least 20 sectors, with ...
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1 answer
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Puzzle: Fairness of consumer price indices

I have learned a bit how the consumer price index (= inflation rate) in Germany is calculated. It's a complex process, which takes into account a lot of measured values (mainly specific prices for ...
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3 votes
1 answer
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Basic New Keynesian Model - Price and Wage Level after shock

I'm currently solving a new Keynesian model with government spending. It's the basic model version, with constant returns to scale on the only production factor work. Everything has worked out fine ...
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Real exchange rate of India and United State?

According to OECD the price level of India is 29, and that of united states is 113, and nominal exchange rate is 64-1(INR-$). So what is the real exchange rate? Is it $$RER = NER\times\frac{US_{...
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1 answer
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Effects of long run stability in U.S price level comparing to other countries on net export

Suppose the United States experiences a long period of relatively stable prices while other countries experience long periods of inflation. How will this affect U.S. net exports? I think that if U.S ...
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Price Level and Value of money

When the price level increases in the economy, we generally know that the value of money decreases. However, what is the definition of money here? Is it just currency? Or does it include assets, ...
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2 answers
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Why are imported Chinese products in India cheaper than those locally produced?

Why an imported Chinese product in India is cheaper compared to a locally manufactured item?
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1 answer
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Difference between chained CPI and normal CPI in simple terms

I am taking a community college level intro to macro course, and while self-studying the text, I came across the concept of C-CPI or chained CPI. While I feel I have a grasp as to what CPI is, I have ...
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Inflation , Housing Prices, Is there some form of the CPI that can include Home Prices?

I understand why we don't include real estate in the CPI. It makes sense, when it is explained to me. I also understand Rent is included in the CPI. However? I live in Canada . Our Populations ...
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2 votes
2 answers
117 views

Why are prices considered the best information we could have?

We often talk about information as pricing being the best information or reflection of different aggregate pieces of information existing on markets. Why do we then also often hear that some prices do ...
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-2 votes
1 answer
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Causality: Money supply and prices

When there is an increase in price level, real money supply decreases and raises interest rates. In a similar situation, when money supply decreases, interest rates increases, consumption decreases, ...
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Does non-binding price ceiling effect the market? [closed]

If the Price of a commodity is 1 dollar and this price is the equilibrium price. At this price, the quantity demanded & supplied is 100(KGs). If government sets the price ceiling of 10 dollars, ...
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1 answer
556 views

Real Exchange Rates calculation

I am struggling with something as simple as real exchange rate calculation! I get the theory: RER = NOM * (P*/P) i.e. nominal exchange rate times price level ratios. Apparently, using CPI (consumer ...
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What are the relationships between price stability and long term economic growth?

I was wondering what the links are between price stability and economic growth on the long term.
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9 votes
3 answers
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Why does the Brexit cause a fall in crude oil prices?

Oil prices have also fallen sharply in the wake of the referendum outcome, with Brent crude down 5.2%. The price of Brent crude fell by \$2.68 to \$48.24 a barrel, its biggest fall since February. ...
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1 answer
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What is autocorrelation of prices?

In my econometrics and economics classes, the term autocorrelation has come up this quarter. I have read the Wikipedia pages about it and tried to understand them, but they are a bit beyond me. They ...
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1 vote
2 answers
270 views

Why does an increase in money cause a proportionate increase in price level according to classical/neoclassical economists?

First I am not sure what classical economists say but doesn't increase in Money supply decreases interest rate and cause investment to expand and thus GDP rises. Therefore the aggregate demand ...
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Significance of Y-axis in Aggregate Supply curve (AD-AS model)

This question is considering an AD-AS model, with Price on the Y-axis and Real GDP on the X axis. The AS is composed of the Keynesian (horizontal), intermediate (upward sloping) and classical (...
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3 answers
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What kind of policy is minimum wage?

Does it fall under fiscal, monetary, or supply-side, or perhaps some other group? Also (seeing as minimum wage is a form of price control policy), where does the broader "price control policy" fall?
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References about market sampling

Suppose the government wants to determine the efficient price of a certain commodity for which there is no competitive market. One way to do this is to take a sample of the potential buyers and ask ...
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1 vote
1 answer
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Flat AD curve - policy effects

Suppose the AD curve is relatively flat because the Fed wants a stable price level. Which policy (monetary or fiscal) is ineffective?
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2 votes
1 answer
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Change in price and income using the Slutsky equation

Quantity bought is given by $$ q(m,p) = 0.02 m - 2 p $$ where $q$ is number of bottles bought, $m$ is income and $p$ is price per bottle. If income is $m = 7500$ and price is $p = 30$, the number of ...
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2 votes
1 answer
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Inverting price functions and their conditions/intervals

If I have demand functions For $P<15$: $$ Q(P) = 700-40P $$ For $P>15$: $$ Q(P) = 400-20P $$ If I invert them, I get the price functions For $Q<100$: $$ P(Q)=20 - (1/20)Q $$ For $Q>...
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Macroeconomics - Fiscal/Monetary Policy and the Price level

I was studying for my macroeconomics test by solving test banks and I came upon this question which has been really bugging me. To decrease the price level A.the Fed could buy bonds and the ...
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-2 votes
3 answers
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Does the Fed use misinformation as a tool for good monetary policy?

The Congress established the statutory objectives for monetary policy-- maximum employment, stable prices, and moderate long-term interest rates --in the Federal Reserve Act. http://www....
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1 answer
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Why did the price level of government consumption increase in the United States?

From The Penn World Tables (PWT7): Before 1970, the price levels of the three GDP components had been going in parallel. In the late 60s, the price level of government consumption went up (the Nixon ...
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3 votes
2 answers
533 views

Why doesn't the price of gold drop as mining occurs that produces more gold?

According to my common knowledge, the price should drop when supply increases. Why doesn't the price of gold drop slowly as more gold is produced from mining?
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1 answer
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Why can't price level be negatively correlated with money demand?

Source: p 585, Economics, 3 Ed, 2014, by NG Mankiw, MP Taylor Although many variables affect the demand for money, one variable stands out in importance: the average level of prices in the ...
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2 votes
2 answers
68 views

Is Price Level equivalent to Inflation when looking at AD/AS and Phillips Curve graphs?

Fairly straight forward, Can I assume that Price Level and Inflation are interchangeable when looking at these graphs together? Generally, are they equivalent in Macroeconomics?
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8 votes
3 answers
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What determines the exchange rate of two fiat currencies if the supply of each is known?

In this blog post, economist Steve Landsburg posed a question about the value of Bitcoin which he didn't know the answer to. Imagine a future in which Bitcoins (or some other non-governmental ...
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4 votes
2 answers
725 views

Oil Price Chart Scale

I found the axis on the following graph of crude oil prices over 1950-2015 from MacroTrends surprising. The y-axis labels are 20, 40, 60, 80, 100, ...but they are not equidistant. Why?
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2 votes
0 answers
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Decreasing consumption prices and increasing housing prices

It's election time in my country. The government boasts a decrease of 5% in consumption prices thanks to removing regulations, while the opposition blames the government for an increase of 5% in ...
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7 votes
5 answers
4k views

Does Inflation Make Money Eventually Worthless?

I used this calculator: http://www.buyupside.com/calculators/inflationjan08.htm to estimate the future worth of 100 dollars in 100 years at 2% inflation. Does this really mean that a decent meal at a ...
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4 votes
3 answers
1k views

Price Elasticity of Demand for Positive Price Increases

What does it mean when the price elasticity of demand %Qd/%P is greater than one? Typically I hear that it means the demand is elastic since if, say, the price decreases by 1% the demand for the ...
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0 votes
1 answer
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When would prices increase according to Malthusianism?

Malthusians and Neo-Malthusians believe that, eventually, the population of the earth will be exceed the number of people able to be sustained by the earth's food production. As such, they advocated ...
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8 votes
2 answers
627 views

What benefits do OPEC countries obtain by cutting oil supply?

It is unclear to a economic novice like me why OPEC is not cutting down production and raising oil prices. I have read several journalists commenting upon this on the internet but perhaps an economist ...
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3 answers
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Analysis of free goods

The normal supply and demand models take the supply and demand of a particular good and show that the equilibrium price is where the two curves intersect. At this point, all the people below the ...
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7 votes
3 answers
719 views

What is the impact of fracking on oil prices?

I read an article about the recent fall of gas prices in the US claiming that the fall in gas prices was due to the expansion of fracking within the US. The article said that, over the past few ...
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