In the year 2025, a country's nominal wage index is 132 and its consumer price index is 120, relative to a base year. Calculate the real wage index for 2025.

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A real wage index for a specific year is calculated by dividing the nominal wage index by the Consumer Price Index (CPI) for that year and then multiplying the result by 100. This index provides a standardized way to track the change in real wages over time compared to a base year. The formula is: $$\text{Real Wage Index} = \left(\frac{\text{Nominal Wage Index}}{\text{Consumer Price Index}}\right) \times 100$$

Formula for Real Wage Index

Figure 1.8 displays the real wage index for the United States from 2010 to 2022, with 2010 serving as the base year. This chart visualizes the fluctuations in the purchasing power of wages over this twelve-year period.

Figure 1.8: US Real Wage Index (2010-2022)

In a given year, an economy reports a nominal wage index of 112 and a consumer price index of 115. Based on this data, which statement best analyzes the situation for the average worker compared to the base year?

Based on the data provided for the country of Econland in 2023, calculate the Real Wage Index. Then, explain what this calculated value indicates about the change in the average worker's purchasing power between the base year (2020) and 2023.

Worker Purchasing Power in a Fictional Economy

Consider an economy where, over a five-year period, the nominal wage index rose from 100 to 120, while the consumer price index rose from 100 to 125. True or False: The average worker's purchasing power has increased over this period.

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