ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Rising inflation affects purchasing power by decreasing the number of goods or services you can purchase with your money. Investors must look for ways to make a return higher than the current rate of inflation.

Detailed explanation-2: -In an inflationary environment, unevenly rising prices inevitably reduce the purchasing power of some consumers, and this erosion of real income is the single biggest cost of inflation. Inflation can also distort purchasing power over time for recipients and payers of fixed interest rates.

Detailed explanation-3: -When inflation is higher, this tends to have a depressing affect on the value of a country’s currency. This is because increased inflation reduces the currency’s buying power, which weakens it against other currencies. The impact of increasing inflation on currency conversion rates is usually downwards.

Detailed explanation-4: -Effect of inflation on fixed income investments One explanation is that most bonds make fixed interest, or coupon payments. Rising inflation erodes the purchasing power of a bond’s future (fixed) coupon income, reducing the present value of its future fixed cash flows.

Detailed explanation-5: -Inflation occurs when prices rise across the economy, decreasing the purchasing power of your money.