Price Level

AAA

DEFINITION of 'Price Level'

The average of current prices across the entire spectrum of goods and services produced in the economy. In a more general sense, price level refers to any static picture of the price of a given good, service or tradable security. Price levels may be given in small ranges, such as with securities prices or presented as a discrete value.

The most common price level index is the Consumer Price Index (CPI).

INVESTOPEDIA EXPLAINS 'Price Level'

The price level is usually examined through a "basket of goods" approach, in which a collection of consumer-based goods and services are examined in aggregate; changes in the aggregate price over time will push the index measuring the basket of goods higher. Weighted averages are typically used rather than geometric means.

Price levels provide a snapshot of prices at a given time, making it possible to review changes in the broad price level over time. As prices rise (inflation), or fall (deflation), consumer demand for goods is also affected, which leads broad production measures like gross domestic product (GDP) higher or lower.

Price levels are one of the most watched economic indicators in the world; it is widely believed that prices should stay relatively stable from year to year so as not to cause undue inflation (rising prices). If price levels begin to rise too quickly, central bankers or governments will look to decrease the money supply or otherwise decrease the aggregate demand for goods and services.

RELATED TERMS
  1. Consumer Price Index - CPI

    A measure that examines the weighted average of prices of a basket ...
  2. Economic Indicator

    An economic indicator is a piece of economic data, usually of ...
  3. Producer Price Index - PPI

    A family of indexes that measures the average change in selling ...
  4. Inflation

    The rate at which the general level of prices for goods and services ...
  5. Deflation

    A general decline in prices, often caused by a reduction in the ...
  6. Trading Range

    The spread between the high and low prices traded during a period ...
RELATED FAQS
  1. What can cause price deflation?

    Deflation, or negative inflation, is the decreases in the prices of goods and services throughout an economy. Deflation can ... Read Full Answer >>
  2. What is the difference between deflation and disinflation?

    Deflation is a decrease in general price levels of throughout an economy. If there is a higher supply of goods and services ... Read Full Answer >>
  3. In what manner will a recession likely affect the marginal-propensity-to-save rate ...

    The marginal propensity to save, or MPS, rises in most, though not all, recessions. This makes perfect sense on an individual ... Read Full Answer >>
  4. What are key economic growth rates that can be used to determine the economic health ...

    Before you can determine the proper indicators for economic health, you must understand what causes an economy to grow and ... Read Full Answer >>
  5. Why would a country's gross domestic product (GDP) and gross national income (GNI) ...

    A country’s gross domestic product, or GDP, and gross national income, or GNI, are likely to differ considerably because ... Read Full Answer >>
  6. While closely related, how do gross domestic product (GDP) and gross national income ...

    Gross domestic product, or GDP, and gross national income, or GNI, are the two most important economic indicators that measure ... Read Full Answer >>
Related Articles
  1. Economics

    Understanding Supply-Side Economics

    Does the amount of goods and services produced set the pace for economic growth? Here are the arguments.
  2. Economics

    Why The Consumer Price Index Is Controversial

    Find out why economists are torn about how to calculate inflation.
  3. Bonds & Fixed Income

    Curbing The Effects Of Inflation

    Your investments suffer when general price levels rise. Learn how you can control the damage with IPSs.
  4. Economics

    The Importance Of Inflation And GDP

    Learn the underlying theories behind these concepts and what they can mean for your portfolio.
  5. Economics

    What is a Resident Alien?

    A resident alien is a foreigner who is a permanent resident of the country in which he or she resides but does not have citizenship.
  6. Economics

    Explaining Protectionism

    Protectionism is government measures that limit imports into a country to protect commerce within that country against foreign competition.
  7. Fundamental Analysis

    Understanding the Profitability Index

    The profitability index (PI) is a modification of the net present value method of assessing an investment’s attractiveness.
  8. Economics

    What is Neoliberalism?

    Neoliberalism is a little-used term to describe an economy where the government has few, if any, controls on economic factors.
  9. Economics

    Understanding Natural Unemployment

    Natural unemployment is often defined as the lowest rate of unemployment an economy will reach.
  10. Fundamental Analysis

    Explaining the Monte Carlo Simulation

    Monte Carlo simulation is an analysis done by running a number of different variables through a model in order to determine the different outcomes.

You May Also Like

Hot Definitions
  1. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  2. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  3. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  4. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  5. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  6. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!