Price stability and controlling inflation are important macroeconomic goals for a nation. Indexing payments to inflation helps maintain purchasing power over time by accounting for any loss caused by rising prices. Converting nominal values like wages to real terms using a price index like CPI allows for accurate comparisons of economic values across different time periods by removing the effect of inflation.

2. The price stability is one of the
nation’s important
macroeconomic goals

3. Indexing a payment makes up for
any loss of purchasing power caused
by inflation.

4.  In order to compare economic values from
different periods, we must translate nominal
variables into real variables.

6. CPI Nominal
Wage
Real
Wage
2010 100 15 15
2015 200 30 15

8. CPI Nominal
Wage
Real
Wage
2010 100 15 15
2015 200 15 7.5

10. The end! 