Regarding HS Economics?

Question

Ok well I have this question which is in my hw...how is a new price index computed? I think I might have an idea but can you please help me, I mean I would really appreciate it! Thank you...

Answer 1

A price index is computed by simply adding up the price of a set of goods and/or services. The key is that each time you update the index, you use the same or similar goods or services - you can't compare 3 apples in 1990 to buying a Cadillac in 2000.

To show how the prices fluctuate over time, you set the index at a specific point in time to 100.