Price Level - Theoretical Foundation

Theoretical Foundation

The classical dichotomy is the assumption that there is a relatively clean distinction between overall increases or decreases in prices and underlying, “nominal” economic variables. Thus, if prices overall increase or decrease, it is assumed that this change can be decomposed as follows:

Given a set of goods and services, the total value of transactions in at time is

where

represents the quantity of at time
represents the prevailing price of at time
represents the “real” price of at time
is the price level at time

A price level is distinguished from a price index in that the existence of the former depends upon the classical dichotomy, while the latter is simply a computation, and many such will be possible regardless of whether they are meaningful.

Read more about this topic:  Price Level

Other articles related to "theoretical foundation, theoretical":

Solomon Curve - Theoretical Foundation
... Hauer provided a theoretical foundation for the Solomon curve in 1971—“for example, if I drive at 45 mph, while the median of the pack is 60 mph, how many cars will pass me ...
Structured Programming - History - Theoretical Foundation
... The structured program theorem provides the theoretical basis of structured programming ... It states that three ways of combining programs—sequencing, selection, and iteration—are sufficient to express any computable function ...
Technology During World War II - Weaponry - Aircraft - Theoretical Foundation
... at Göttingen was the main center of theoretical and mathematical aerodynamics and fluid dynamics research from soon after 1904 to the end of World War II ...

Famous quotes containing the words foundation and/or theoretical:

    The Bermudas are said to have been discovered by a Spanish ship of that name which was wrecked on them.... Yet at the very first planting of them with some sixty persons, in 1612, the first governor, the same year, “built and laid the foundation of eight or nine forts.” To be ready, one would say, to entertain the first ship’s company that should be next shipwrecked on to them.
    Henry David Thoreau (1817–1862)

    Post-structuralism is among other things a kind of theoretical hangover from the failed uprising of ‘68Ma way of keeping the revolution warm at the level of language, blending the euphoric libertarianism of that moment with the stoical melancholia of its aftermath.
    Terry Eagleton (b. 1943)