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ADJUSTMENT, LONG-RUN AGGREGATE MARKET: Disequilibrium in the long-run aggregate market induces changes in the price level that restore equilibrium. If the price level is above the long-run equilibrium price level, economy-wide product market surpluses cause the price level to fall. If the price level is below the long-run equilibrium price level, economy-wide product market shortages cause the price level to rise. In both cases long-run equilibrium is restored. Price level changes induce changes in aggregate expenditures but NOT changes in real production. The reason is that long-run aggregate supply is full-employment real production, which is unaffected by the price level.

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WHOLESALE PRICE INDEX:

An index of the prices paid by retail stores for the products they ultimately resell to consumers. The Wholesale Price Index (WPI) was the forerunner of the modern Producer Price Index (PPI) and was discontinued in 1978. Other noted price indexes used to track economic activity are the Consumer Price Index (CPI) and the GDP price deflator.
The Wholesale Price Index (WPI) was first published in 1902, and was one of the more important economic indicators available to policy makers until it was replaced by the PPI in 1978. The change to Producer Price Index in 1978 reflected, as much as a name change, a change in focus of this index away from the limited wholesaler-to-retailer transaction to encompass all stages of production. While the WPI is no longer available, the family of producer price indexes provides a close counterpart in what is labeled the Finished Goods Price Index.

The importance of the WPI rested with its ability to forewarn later changes in the Consumer Price Index (CPI) and inflation. The WPI's forecasting ability rested with the simply input-output relation for retail stores. In other words, the prices PAID BY retail stores for their inputs are largely passed along as prices CHARGED TO consumers buying these goods as outputs. An increase in the WPI resulting from higher input prices this month, is likely reflected in an increase in the CPI in future months.

This forecasting ability was frequently useful for stabilization policies. Suppose, for example, that the Chairman of the Federal Reserve System wanted to prevent inflation. Even though the CPI and GDP price deflator were relatively stable, an increase in the WPI would have prompted the Chairman to initiate contractionary monetary policy, making a pre-emptive strike against inflation.

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WHOLESALE PRICE INDEX, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2022. [Accessed: October 6, 2022].


Check Out These Related Terms...

     | Producer Price Index | Consumer Price Index | GDP price deflator | Consumer Price Index for All Urban Consumers | Consumer Price Index for Urban Wage Earners and Clerical Workers | CPI and GDP price deflator |


Or For A Little Background...

     | inflation | price level | price index | cost of living | production cost | business cycles | business cycle indicators | macroeconomics | macroeconomic goals | macroeconomic problems | production possibilities | gross domestic product | real gross domestic product | nominal gross domestic product |


And For Further Study...

     | deflation | disinflation | inflation problems | inflation causes | demand-pull inflation | cost-push inflation | unemployment rate | Bureau of Labor Statistics | Bureau of Economic Analysis | National Income and Product Accounts |


Related Websites (Will Open in New Window)...

     | Bureau of Labor Statistics |


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