Purchasing Power
Definition
Purchasing power refers to the amount of goods and services that can be bought with a given amount of money. It is influenced by changes in prices and inflation.
Analogy
Think of purchasing power as a slice of pizza. When prices rise, your purchasing power decreases, meaning you can buy fewer slices with the same amount of money.
Related terms
Inflation: Inflation is the general increase in prices over time, which reduces the purchasing power of money.
Consumer Price Index (CPI): CPI measures changes in the average price level of goods and services purchased by households, providing an indicator for inflation.
Nominal Income: Nominal income is the actual dollar amount earned or received without adjusting for inflation.
"Purchasing Power" appears in:
Study guides (3)
Practice Questions (3)
Which group may benefit from unanticipated inflation if they can reduce nominal wages without reducing workers' purchasing power?
Which group may face erosion of the purchasing power of their savings due to unanticipated inflation?
What is likely to happen to the purchasing power of money when there is hyperinflation in an economy?
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