difference between real wage and nominal wage
Question
difference between real wage and nominal wage
Solution
The difference between real wage and nominal wage lies in what each one represents and how they are affected by the overall economy.
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Nominal Wage: This is the wage that is paid to an employee in cash at the end of a pay period. It is the actual amount of money that an employee receives in their paycheck. It does not take into account the purchasing power of the money received. Nominal wage is affected by the rate of inflation. If inflation is high, the nominal wage may seem high, but the actual purchasing power of that wage may be low.
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Real Wage: This is the wage that an employee receives after it has been adjusted for inflation. It represents the purchasing power of the nominal wage, i.e., the quantity of goods and services that can be bought with the nominal wage. If the inflation rate is high, the real wage will be lower than the nominal wage because the purchasing power of the nominal wage has decreased.
In summary, the nominal wage is the actual amount of money received, while the real wage is the purchasing power of that money. The real wage gives a more accurate picture of an employee's standard of living.
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