Price Levels, Price Indices, and Fisher’s Equation of Exchange

Abstract

Reviewing the axiomatic theories of the price index in the preceding chapters, one can easily lose sight of the basic problem of defining price indices which measure the price behavior of a basket of goods and services in a ‘reasonable’ way. In this context, ‘reasonable’ refers to the need for a quantiative measure which reflects price level changes of a certain market basket most accurately. After the detailed analysis of such yardsticks of price levels changes, we now turn to the concept of a price level itself.