ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The purchasing power of money goes down when there is high inflation as the prices of various commodities rise, we can purchase less and less amount in the same price. Q. Q. To control inflation, the government can increase tax rates as it will decrease the people’s purchasing power.

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: -Inflation is a rise in prices, which can be translated as the decline of purchasing power over time. The rate at which purchasing power drops can be reflected in the average price increase of a basket of selected goods and services over some period of time.

Detailed explanation-4: -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-5: -Inflation is the rate at which the price of goods and services increases. As a result of inflation, the purchasing power (value) of money decreases over time. Inflation affects the prices of everything around us.