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 makes your money worth less, so you’ll have to spend more for the same goods and services. In short, when inflation increases, your purchasing power decreases.

Detailed explanation-4: -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-5: -Purchasing power doesn’t just relate to how much you can buy with your money. It also affects stock prices, as well as general economic health. That’s because if inflation causes purchasing power to decrease significantly, and the cost of living goes up, that will lead to more cash-strapped consumers.