Indexation
Automatic adjustment of value based on index (e.g., wage indexation to inflation).
Formula
Indexed Wage = Nominal Wage × (Current CPI ÷ Base CPI)
Real World
In the UK, the state pension is protected by the 'triple lock', which links annual increases to inflation, earnings, or 2.5% — whichever is highest — preserving pensioners' purchasing power.
Exam Focus
Distinguish real value (after indexation) from nominal value; 'evaluate' questions require you to judge whether indexation is always beneficial.
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