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. Causes of purchasing power gain include deflation and technological innovation.

Detailed explanation-2: -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-3: -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-4: -The purchasing power of the consumer’s dollar measures the change in the value to the consumer of goods and services that a dollar will buy at different dates. In other words, as prices increase, the purchasing power of the consumer’s dollar declines.