Page 248 - DMGT404 RESEARCH_METHODOLOGY

Research Methodology

Notes Solution:
Computation of Real Wages
Average Monthly Consumer Price Real average
Years
wage Index monthly wage
500
1980 500 100 × 100 = 500.00
100
525
1981 525 110 × 100 = 477.27
110
560
1982 560 120 × 100 = 466.67
120
600
1983 600 125 × 100 = 480.00
125
630
1984 630 135 × 100 = 466.67
135
635
1985 635 160 × 100 = 396.88
160
700
1986 700 185 × 100 = 378.38
185
740
1987 740 200 × 100 = 370.00
200
800
1988 800 210 × 100 = 380.95
210
900
1989 900 240 × 100 = 375.00
240
Purchasing Power of Money
When prices in general are rising, the real value of a rupee is declining. If, e.g., the price index in
1992 with base 1990 is 120, the real value of a rupee in 1992 as compared with its value in 1990.
This implies that a rupee in 1992 is worth only 83 paise of 1990.
From the above we note that the purchasing power of a rupee in current year is equal to the
reciprocal of the price index multiplied by 100. Thus, we can write

Current Rupee×100 100
Purchasing Power of a Rupee or Constant Rupee= =
Price Index Price Index

Note that the Current Rupee is always equal to unity.
100
We can also write Price Index=
Constant Rupee

Example: Given the following information on the Gross Domestic Product (in crores)
at the constant (1980 - 81) prices and at current prices for five years. Calculate the series of price
index numbers and of quantity index numbers for each of the five years with 1980 - 81 as base
year.
G.D.P. at constant G.D.P. at current
(1980-81) Prices Prices
1980-81 200 200
1981-82 150 240
1982-83 125 350
1983-84 120 360
1984-85 160 400

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