General price level

General price level

An index that measures the change in price of goods in an economy over time and hence the purchasing power of the currency of the country. For instance, in the U.S. it is represented by the CPI (Consumer Price Index) maintained by the U.S. Department of Labor. 
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1) Aggregate demand for each country is assumed negatively dependent on the general price level but to demonstrate different price level elasticities, the aggregate supply of final goods and services is specified as a positive function of the price level, which implies some degree of wage or factor price rigidity.
We investigate the behavior of the general price level in an economy in which an individual firm can either pay a cost (featuring a random component) to update its information set and establish the optimal price (Nash strategy) or freely use full information from the previous period and set a one-period lagged optimal price (bounded rationality strategy).
Public transport has revised downward their fares, which has salutary effect on general price level.
Moreover, FEF noted that train fares have stayed the same since 2003, even with the general price level nearly doubling since the beginning of 2000, while fares for buses and jeepneys have been adjusted periodically.
An unexpected fall in the general price level raises real incomes.
It is also expected that the general price level in 2015 will be around the levels of past years at 1.
Sabzalipour says that, when production loses its valuable aspect, the economic growth rate decreases subsequently and un-employment, inflation and the general price level will increase.
The conclusion for an economic expansion caused by increased aggregate demand is unambiguous: the balance of trade deficit is larger the less elastic is aggregate demand with respect to the general price level.
Another possible explanation for the relationship is the hypothesis of imperfect information according to which: as individual firms lack full information regarding general price level they may confuse changes in the general price level with relative price changes.
Wetterwald said: "As we all know inflation can be measured through various indices: GDP Deflator measures the general price level of all goods and services produced domestically including consumption, intermediate, and capital goods, but does not count for the price of imported goods and services; Consumer Price Index measures the general price level of a specified basket of the goods and services on which a consumer spends his income.
Energy intensive producers will raise their prices right after the government raises energy prices, which will put pressure on the monetary authorities to expand credit or print money, which will raise the general price level.

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