**Definition:**A price index following a particular algorithm.

It is calculated from a set ("basket") of fixed quantities of a finite list of goods. We are assumed to know the prices in two different periods. Let the price index be one in the first period, which is then the base period. Then the value of the index in the second period is equal to this ratio: the total price of the basket of goods in period two divided by the total price of exactly the same basket in period one.

As for any price index, if all prices rise the index rises, and if all prices fall the index falls.

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- Cost-Push Inflation vs. Demand-Pull Inflation

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