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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%.
what role does interst rate play in refernce to output?
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benefit of GDP
Do we get paid nominal or real wage?
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