Editing Real and nominal value (section)

==Commodity bundles, price indices and inflation==

A '''commodity bundle''' is a sample of [[good (economics)|goods]], which is used to represent the sum total of goods across the economy to which the goods belong, for the purpose of comparison across different times (or locations). At a single point of time, a commodity bundle consists of a list of goods, and each good in the list has a market price and a quantity. The market value of the good is the market price times the quantity at that point of time. The '''nominal''' value of the commodity bundle at a point of time is the total market value of the commodity bundle, depending on the market price, and the quantity, of each good in the commodity bundle which are current at the time. 

A [[price index]] is the relative price of a commodity bundle. A price index can be measured over time, or at different locations or markets. If it is measured over time, it is a series of values <math>P_t</math> over time <math>t</math>. A [[time series]] price index is calculated relative to a '''base''' or '''reference''' date. <math>P_0</math> is the value of the index at the base date. For example, if the base date is (the end of) 1992, <math>P_0</math> is the value of the index at (the end of) 1992. The price index is typically '''normalized''' to start at 100 at the base date, so <math>P_0</math> is set to 100. 

The length of time between each value of <math>t</math> and the next one, is normally constant regular time interval, such as a calendar year. <math>P_t</math> is the value of the price index at time <math>t</math> after the base date. <math>P_t</math> equals 100 times the value of the commodity bundle at time <math>t</math>, divided by the value of the commodity bundle at the base date. If the price of the commodity bundle has increased by one percent over the first period after the base date, then ''P''<sub>1</sub> = 101.

The '''inflation rate''' <math>i_t</math> between time <math>t-1</math> and time <math>t</math> is the change in the price index divided by the price index value at time <math>t-1</math>:

<math>i_t = \frac{P_t-P_{t-1}}{P_{t-1}}</math> 

:<math>= \frac{P_t}{P_{t-1}} - 1</math>

expressed as a percentage.