PRC-2 · Chapter 9 · Question 32 of 60
How is 'Real Income' or true purchasing power mathematically calculated using the Consumer Price Index (CPI)?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) (Nominal Income / CPI) × 100
Explanation
To strip away the effects of inflation and find true purchasing power, the nominal (raw) wage is divided by the current CPI and multiplied by 100. This is known as deflating the income.
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