Measuring The Price Level And Inflation

One hundred years ago, you could buy a pound of coffee for 15 cents, see a Broadway play for 40 cents, buy a new suit for $6, and attend a private college for $200 in yearly tuition.1 Needless to say, the price of each of these items has gone up considerably since then. Microeconomic causes—changes in individual markets—can

1 Scott Derks, ed., The Value of the Dollar: Prices and Incomes in the United States: 1860-1989 (Detroit, MI: Gale Research Inc., 1994), various pages.

explain only a tiny fraction of these price changes. For the most part, these price rises came about because of an ongoing rise in the price level—the average level of Price level The average level of dollar prices in the economy. In this section, we begin to explore how the price level dollar prices in the ec°n°my. is measured, and how this measurement is used.

track a variable's rise or fall over time.

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