Editing Price level (section)

== Theoretical foundation ==
The [[classical dichotomy]] is the assumption that there is a relatively clean distinction between overall increases or decreases in prices and underlying, “nominal” economic variables.  Thus, if prices ''overall'' increase or decrease, it is assumed that this change can be decomposed as follows:

Given a set <math>C</math> of goods and services, the total value of transactions in <math>C</math> at time <math>t</math> is
:<math>\sum_{c\,\in\, C} (p_{c,t}\cdot q_{c,t})=\sum_{c\,\in\, C} [(P_t\cdot p'_{c,t})\cdot q_{c,t}]=P_t\cdot \sum_{c\,\in\, C} (p'_{c,t}\cdot q_{c,t})</math>
where
:<math>q_{c,t}\, </math> represents the quantity of <math>c</math> at time <math>t</math>
:<math>p_{c,t}\,</math> represents the prevailing price of <math>c</math> at time <math>t</math>
:<math>p'_{c,t}</math> represents the “real” price of <math>c</math> at time <math>t</math>
:<math>P_t</math> is the price level at time <math>t</math>

The general price ''level'' is distinguished from a price ''index'' in that the existence of the former depends upon the classical dichotomy, while the latter is simply a computation, and many such will be possible regardless of whether they are meaningful.