after the base date, then P1 = 101. The inflation rate between time and time is the change in the price index divided by the price index value at time : expressed as a percentage. Real value The nominal value of a commodity bundle tends to change over time. In contrast, by definition, the real value of the commodity bundle in aggregate remains the same over time. The real values of individual goods or commodities may rise or fall against each other, in relative terms, but a representative commodity bundle as a whole retains its real value as a constant from one period to the next. Real values can for example be expressed in constant 1992 dollars, with the price level fixed 100 at the base date. The price index is applied to adjust the nominal value of a quantity, such as wages or total production, to obtain its real value. The real value is the value expressed in terms of purchasing power in the base year. The index price divided by its base-year value gives the growth factor of the price index. Real values can be found by dividing the nominal value by the growth factor of a price index. Using the price index growth factor as a divisor for converting a nominal value into a real value, the real value at time t relative to the base date is: Real growth rate The real growth rate is the change in a nominal quantity in real terms since the previous date . It measures by how much the buying power of the quantity has changed over a single period. where is the nominal growth rate of , and is the inflation rate. For values of between −1 and 1 (i.e. ±100 percent), we have the Taylor series so Hence as a first-order (i.e. linear) approximation, Real wages and real gross domestic products The bundle of goods used to measure the Consumer Price Index (CPI) is applicable to consumers. So for wage earners as consumers, an appropriate way to measure real wages (the buying power of wages) is to divide the nominal wage (after-tax) by the growth factor in the CPI. Gross domestic product (GDP) is a measure of aggregate output. Nominal GDP in a particular period reflects prices that were current at the time, whereas real GDP compensates for inflation. Price indices and the U.S. National Income and Product