How can we define the real wage as nominal wage

We define real wage as nominal wage divided by a price index (typically CPI). In the illustration above, your real wage was 20 in January and 21.36 in February if we use price of the basket as a price index. Remember that nominal wage will tell you your wage in units of currency whereas real wage will tell you your wage in baskets of goods and services and this is more important to us.

Hence we care about increases in real wages, not in nominal wages. If you found out that Ken, who works in another nation, got a 50% increase in his wage every year, you may initially be quite happy for Ken. If you then found out that inflation in country where Ken works is 70%, you should actually feel sorry for him. His real wage is 1.5/1.7 = 88% of his real wage the year before - a real wage cut by 12%.  

 

Posted Date: 9/13/2013 2:17:26 AM | Location : United States

Ask an Expert

Related Discussions:- How can we define the real wage as nominal wage, Assignment Help, Ask Question on How can we define the real wage as nominal wage, Get Answer, Expert's Help, How can we define the real wage as nominal wage Discussions

Write discussion on How can we define the real wage as nominal wage
Your posts are moderated

Write your message here..

Related Questions

Positive and normative economics-introduction, Positive and normative econo... Positive and normative economics -introductiion Economic theory or analysis evolves from basic propositions about how individual human beings (or individual economic units) beh

FREE TRADE AND PROTECTIONISM, WHY IS INTERNATIONAL TRADE IMPORTANT IN SOUTH... WHY IS INTERNATIONAL TRADE IMPORTANT IN SOUTH AFRICA

Economists finance manager functional areas of MANAGEMENT, The primary func... The primary functions of economists are to teach, contribute research and empirical findings and formulate policies. Most of the professional economists are associated with academi

Four different measures of GDP, Four different measures of GDP Using ci... Four different measures of GDP Using circular flow model we see that there are 4 equivalent ways of measuring GDP:  Using the definition: market value of all finished goo

No relationship between the two at other times, Do some research and find t... Do some research and find the inflation rate and the level of unemployment in the U.S. economy for the past 40 years. Is there a relationship between the two? If so, what type of r

Currency, Assume that Jimmy Cash has $2100 in his checking account and uses... Assume that Jimmy Cash has $2100 in his checking account and uses his checking card to withdraw $210 from his ATM machine. By what amount did M1 change from this individual transac

Best estimate of real gdp, Consumption = $3 trillion, Investment spending =... Consumption = $3 trillion, Investment spending =$2 trillion, Government purchases = $2 trillion, net exports via the ROW is $0 trillion. 1. What is the best estimate of real GDP

Economics, n 2013, approximately 58 percent of the adult population (245 mi... n 2013, approximately 58 percent of the adult population (245 million) was employed, the lowest employment rate in 20 years. If the employment rate increased to the prerecession l

Lorenz curve, what do we mean when we say export are exogenous and import a... what do we mean when we say export are exogenous and import are endogeneos?

What is the opportunity cost of economic growth, What is the opportunity co... What is the opportunity cost of economic growth? Opportunity cost measures the cost of an economic option within terms of the next best option foregone. The government of a