9. Numerical Illustrations under Various Assumptions
A. The Standard Hypothetical Case. A mental picture of the actual operation of the stabilizing process can best be obtained from illustrative numerical examples, such as are considered in this section.
There are five factors determining the stabilization process: the "brassage" charge, which serves as the limit on any single adjustment of the dollar's weight, the amount of "adjustment" of the dollar's weight for a given deviation from par of the index number, the amount of the "influence" which said adjustment has on the index number, the "lag" of time elapsing between the adjustment and completion of its influence, and the prior "tendency" of the price level to rise or fall, were it not combated by the stabilization process.
Our first example will be called the "standard hypothetical case." In later sections the several conditions will be separately varied from those of this standard case.
The standard hypothetical case assumes the five factors to be as follows:
(1) Brassage charge: 1%.
(2) Adjustment rule: 1% for each 1% of deviation from par of the index number (no one adjustment to exceed the brassage).
(3) Influence thereof on index number: 1% for each 1% of adjustment.
(4) Lag of said influence following the adjustment causing it: 1 adjustment interval.[1]
(5) Tendency of price level: were it not for stabilization the price level would at first increase 1% each interval; afterward, it would decrease 1% each interval.
The fifth assumption implies that, were it not for stabilization, the index number would be:
- ↑ We may, to fix our ideas, consider this interval between successive adjustment dates to be two months. But its absolute length affects neither the argument nor the calculations.
