A price index measures changes in what?

A price index measures changes in what?

• A. Quantity index
• B. Price index
• C. Index of production
• D. Composite index

Answer: (B)

Price index tracks how the level of prices changes over time. It does this by comparing the cost of a fixed basket of goods and services in the current period with the cost of the same basket in a base period, producing a number that rises when prices rise and falls when prices fall. The percentage change between periods gives inflation. This is different from a quantity index, which would measure changes in quantities, an index of production which focuses on output, or a composite index that mixes different kinds of measures. So the price index is the measure of price movements over time.

Price index tracks how the level of prices changes over time. It does this by comparing the cost of a fixed basket of goods and services in the current period with the cost of the same basket in a base period, producing a number that rises when prices rise and falls when prices fall. The percentage change between periods gives inflation. This is different from a quantity index, which would measure changes in quantities, an index of production which focuses on output, or a composite index that mixes different kinds of measures. So the price index is the measure of price movements over time.