ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Consumers lose purchasing power when prices increase. They gain purchasing power when prices decrease. Causes of purchasing power loss can include government regulations, inflation, and natural and human-made disasters.

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: -The purchasing power of currency is the quantity of goods and services that can be bought with a monetary unit. Because of rising prices, the purchasing power of currency deteriorates over time. Outside of the country, it drops in cases of depreciation and devaluation and increases with the opposite.

Detailed explanation-4: -Inflation occurs when prices rise across the economy, decreasing the purchasing power of your money.

Detailed explanation-5: -The intuition behind the real wealth effect is that when the price level decreases, it takes less money to buy goods and services. The money you have is now worth more and you feel wealthier. So, in response to a decrease in the price level, real GDP will increase.