Question

To convert the money spent on the basket to a useable figure, economists arbitrarily choose the

, or starting point from which we measure changes in prices.

To simplify the task of interpreting the price levels for more realistic and complex baskets of goods, economists typically report the price level in each period as an

, rather than as the dollar amount for buying the basket of goods.

Answer 1

1. To convert the money spent on the basket to a useable figure, economists arbitrarily choose the one year, or starting point from which we measure changes in prices.
(When measuring changes, a year is randomly chosen to be the base year.)

2. To simplify the task of interpreting the price levels for more realistic and complex baskets of goods, economists typically report the price level in each period as an index number, rather than as the dollar amount for buying the basket of goods.
(Price level is reported in the form of index number.)