Wages can be expressed in two ways. When they are expressed in terms of money paid to the worker they are called nominal wages. But when they are expressed in terms of their purchasing power with reference to some base year they are called real wages. These wages are arrived at by making adjustment in the nominal wages for the rise or fall in the cost of living.
How do we measure changes in the cost of living, or changes in the prices that consumers pay? The measuring rod is the consumer price index number. This index number is intended to show over a period of time the average percentage change in the prices paid by the consumers belonging to the population group proposed to be covered by the index for a fixed list of goods and services consumed by them.… Read the rest