Statistics · Ch 1 — Index Number

Uses of Index Numbers: Deflating Money Wage and Income

The most powerful practical use of a price index in this chapter is deflating — separating a genuine change in purchasing power from a change that is purely due to price inflation.

Real Wage / Real Income:

\text{Real Wage} = \dfrac{\text{Money (Nominal) Wage}}{\text{CPI}} \times 100

Purchasing power of money is the reciprocal relationship:

$\text{Purchasing Power of Money} = \dfrac{100}{\text{CPI}}$ …

Definition 1Real Wage and Purchasing Power of Money

$\text{Real Wage}=\dfrac{\text{Money Wage}}{\text{CPI}}\times100$ ; $\text{Purchasing Power of Money}=\dfrac …

Start your 14-day free trial to unlock the full solution →

← Previous · 6Consumer Price Index (CPI) and Wholesale Price Index (WPI)Next →Q6 — Verify that Fisher's Ideal Index Number satisfies the Time Reversal Te…