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An economic variable whose value is linked to an index number. Index-linked government securities have their interest and redemption payments linked to a suitable price index, for example the retail price index (RPI). Index-linked securities, wage rates, or pensions may be linked either to the RPI or to some index of share prices. The advantage of index-linked securities or incomes is that they protect the holder against the effects of large unforeseen changes in the value of money. A wide spread of index-linking arrangements in an economy may help to make inflation more difficult to stop, as it eliminates the effects of price increases in reducing the real claims on the rest of the economy of those who hold cash and securities with values fixed in cash terms.

Subjects: Economics.

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