Final answer:
The real wage is the wage adjusted for inflation. Inflation is the general increase in prices of goods and services over time, and adjusting wages for inflation ensures that the purchasing power of the wage remains constant.
Step-by-step explanation:
The real wage is the wage adjusted for inflation.
Inflation is the general increase in prices of goods and services over time. It erodes the purchasing power of money, including wages. Adjusting wages for inflation ensures that the purchasing power of the wage remains constant.
For example, let's say that the nominal wage is $10 per hour. If the inflation rate is 2%, the real wage would be $9.80 per hour to maintain the same purchasing power. This adjustment accounts for changes in the cost of living and allows workers to compare their wages over time.