Which of the following statements concerning price indexes is not accurate?

Price indexes define the cost of goods in the entire economy at a given point in time.

Price indexes assist consumers and businesses in making economic decisions.

Price indexes produce an average of prices that economists can compare to earlier averages.

Price indexes assist the government in making policy decisions.

1 answer

All the statements provided concerning price indexes appear to be accurate in their descriptions of the role and function of price indexes. However, if one must identify a potential nuance that might not fully capture the complexity or limitations of price indexes, it could be argued that:

  • "Price indexes define the cost of goods in the entire economy at a given point in time."

This statement could be seen as somewhat misleading. Price indexes do not strictly define the cost of all goods but rather represent a weighted average of selected goods and services. They may not account for every item in the economy or reflect changes in quality, preferences, or the availability of substitutes.

Nonetheless, without more context indicating the specific inaccuracies of the statements, they generally do reflect the roles that price indexes have in economic analysis and policy making.