Indexation
Automatic adjustment of value based on index (e.g., wage indexation to inflation).
Formula
Indexed Wage = Original Wage × (Current CPI ÷ Base CPI)
Real World
Many UK public sector workers have union agreements linking pay rises to the Consumer Price Index (CPI), so if inflation hits 5%, their wages automatically increase by 5% to maintain purchasing power.
Exam Focus
Distinguish between nominal value (face value) and real value (adjusted for inflation) — examiners frequently penalise answers that confuse the two.
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