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Cost of living index (C.L.I.) numbers are also used to find real wages by the process of
- a)Deflating of Index number.
- b)Splicing of Index number.
- c)Base shifting.
- d)None of these.
Correct answer is option 'A'. Can you explain this answer?
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Cost of living index (C.L.I.) numbers are also used to find real wages...
Deflating of Cost of Living Index (C.L.I.) Numbers
Deflating of Cost of Living Index (C.L.I.) numbers is the process of converting nominal wages into real wages by adjusting them for inflation. This process is important to determine the actual purchasing power of wages over time.
Steps involved in deflating C.L.I. numbers:
1. Find the current C.L.I. number: The current C.L.I. number measures the average change in prices of goods and services over time. It is used as the basis for calculating the inflation rate.
2. Find the base year C.L.I. number: The base year C.L.I. number is the index number that represents the prices of goods and services in a specific year, which is usually chosen as the base year for comparison.
3. Calculate the inflation rate: The inflation rate is the percentage change in the C.L.I. number from the base year to the current year.
4. Adjust nominal wages for inflation: To find the real wage, the nominal wage is divided by the inflation rate. This process accounts for the change in purchasing power over time due to inflation.
Conclusion:
Deflating C.L.I. numbers is an important tool for understanding the real value of wages over time. By adjusting for inflation, it provides a more accurate reflection of the purchasing power of wages.
Deflating of Cost of Living Index (C.L.I.) numbers is the process of converting nominal wages into real wages by adjusting them for inflation. This process is important to determine the actual purchasing power of wages over time.
Steps involved in deflating C.L.I. numbers:
1. Find the current C.L.I. number: The current C.L.I. number measures the average change in prices of goods and services over time. It is used as the basis for calculating the inflation rate.
2. Find the base year C.L.I. number: The base year C.L.I. number is the index number that represents the prices of goods and services in a specific year, which is usually chosen as the base year for comparison.
3. Calculate the inflation rate: The inflation rate is the percentage change in the C.L.I. number from the base year to the current year.
4. Adjust nominal wages for inflation: To find the real wage, the nominal wage is divided by the inflation rate. This process accounts for the change in purchasing power over time due to inflation.
Conclusion:
Deflating C.L.I. numbers is an important tool for understanding the real value of wages over time. By adjusting for inflation, it provides a more accurate reflection of the purchasing power of wages.
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Cost of living index (C.L.I.) numbers are also used to find real wages by the process ofa)Deflating of Index number.b)Splicing of Index number.c)Base shifting.d)None of these.Correct answer is option 'A'. Can you explain this answer?
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