Price Level

The price level is just a fancy way of saying the current average price of goods and services in an economy. It’s expressed as a price “level” because it can go up and down in a nominal way, but not necessarily in a real way. If price levels of all goods and services rise, but so do incomes...then we’re looking at inflation.

Before you get too excited about that raise, you might want to check to see how much the price level has risen. If your raise was the same amount as inflation, then...you didn’t really get a raise, since you can’t actually buy more stuff. But you will have more actual dollar bills that can buy...less.

Besides the price level of goods and services, price level is often used when talking about the prices of stocks and other securities. If the price level of a stock is increasing, it’s considered to have “support.” If not, the stock is feeling the drag of “resistance.”

At the end of the day, price levels remind us that buying-power and inflation are real things. More money (nominal dollars) in your pocket doesn’t necessarily mean you’re richer...because you can’t buy more stuff. Yep. Price levels.