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All superlative indices produce similar results and are generally the favored formulas for calculating price indices. [14] A superlative index is defined technically as "an index that is exact for a flexible functional form that can provide a second-order approximation to other twice-differentiable functions around the same point." [15]
The price index for some period is usually normalized to be 1 or 100, and that period is called "base period." A Törnqvist or Törnqvist-Theil price index is the weighted geometric mean of the price relatives using arithmetic averages of the value shares in the two periods as weights. [1]
In macroeconomics, a monetary conditions index (MCI) is an index number calculated from a linear combination of a small number of economy-wide financial variables deemed relevant for monetary policy. These variables always include a short-run interest rate and an exchange rate. [1]
A price index (plural: "price indices" or "price indexes") is a normalized average (typically a weighted average) of price relatives for a given class of goods or services in a given region, during a given interval of time.
Index numbers are used especially to compare business activity, the cost of living, and employment. They enable economists to reduce unwieldy business data into easily understood terms. In contrast to a cost-of-living index based on the true but unknown utility function, a superlative index number is an index number that can be calculated. [1]
In monetary economics, the equation of exchange is the relation: = where, for a given period, is the total money supply in circulation on average in an economy. is the velocity of money, that is the average frequency with which a unit of money is spent.
The Fisher equation can be used in the analysis of bonds.The real return on a bond is roughly equivalent to the nominal interest rate minus the expected inflation rate. But if actual inflation exceeds expected inflation during the life of the bond, the bondholder's real return will suffer.
A pure exchange economy is the simplest form of exchange in the exchange economy. Assuming that each consumer has a certain amount of initial resources (endowment) that can be used for exchange, and every consumer has their own preferences. When the price is given or stable, the Pareto optimal allocation can be found. [3] [4]