Discuss the concepts of money wage and real wage.

Money wage and real wage are two important concepts in economics that help us understand the purchasing power of wages.

**Money Wage:** Money wage refers to the amount of money paid to workers for their labor. It is the nominal wage, expressed in terms of the currency of the country. For example, if a worker is paid $20 per hour, then $20 is their money wage.

**Real Wage:** Real wage, on the other hand, refers to the purchasing power of the money wage. It is the amount of goods and services that can be purchased with the money wage. Real wage takes into account the effect of inflation or deflation on the purchasing power of money. It is calculated by dividing the money wage by the price level.

The formula for calculating real wage is:

\[
\text{Real Wage} = \frac{\text{Money Wage}}{\text{Price Level}}
\]

For example, if the money wage is $20 per hour and the price level is 1.2, then the real wage would be:

\[
\text{Real Wage} = \frac{20}{1.2} = 16.67
\]

This means that with a money wage of $20 per hour, the worker can purchase goods and services equivalent to $16.67 in today’s prices.

The concept of real wage is important because it reflects the actual purchasing power of wages. A rise in money wages may not necessarily lead to an increase in real wages if prices rise by the same or a greater percentage. Conversely, a fall in money wages may not result in a decrease in real wages if prices fall by a greater percentage.

In summary, while money wage is the nominal amount of money paid to workers, real wage takes into account the purchasing power of that money wage. Understanding the relationship between money wage and real wage is crucial for analyzing changes in living standards, inflation, and economic growth.