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The purpose of measuring the overall level of prices in the economy is to permit () between dollar figures from different points in time.
Comparison
The formula for turning dollar values from year T(old year) into the dollar value for the current day, use the following formula.
Amount In Today’s Dollars = Amount In Year T Dollars * (Current CPI/Year T CPI)
If the amount in today’s dollars is less than the original gas price, that means the gas price has () by the difference in those values, and vice-versa.
Increased
When a dollar amount is automatically corrected for inflation, that amount is said to be () for inflation.
Indexed
A long-term contract between employees and employers where their wages include partial or complete indexation for inflation.
Cost Of Living Allowance(COLA)
Interest rate change, which only cares about changes in dollar amounts.
Nominal Interest Rate
The interest rate corrected for inflation.
Real Interest Rate
The real interest rate is calculated as follows:
Real Interest Rate = Nominal Interest Rate - Inflation Rate
