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Money and Prices

In: The Structure of a Modern Economy

Author

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  • Kenneth E. Boulding

    (University of Colorado)

Abstract

A very important property of any economy over time is the degree to which it has experienced inflation or deflation of prices, including money wages. Any monetary unit like the dollar is subject to fluctuations in its general purchasing power because of changes in money prices. We try to measure these fluctuations by constructing a price level index or a price deflator (or inflator), of which there are many varieties. There is some dispute among economists that has never quite been resolved as to what the ideal price index should be. One index is calculated by estimating how much money it would take to buy a ‘market basket’ of relevant commodities, corresponding more or less to the relative quantities that are produced or consumed. Other measures have been proposed, but this seems to be the simplest and perhaps the most meaningful. A difficulty arises, however, when deciding which market basket is significant when the relative quantities of commodities actually purchased change over time. The price level index will be different if we take the market basket at the beginning or at the end of the period. When there is a change in the quality of commodities, and when new commodities appear, the task of defining a price level in an exact form becomes virtually impossible and we have to be content with rough measures (Chapter 1).

Suggested Citation

  • Kenneth E. Boulding, 1993. "Money and Prices," Palgrave Macmillan Books, in: The Structure of a Modern Economy, chapter 4, pages 40-52, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-12943-0_4
    DOI: 10.1007/978-1-349-12943-0_4
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