Written by the Fiveable Content Team • Last updated September 2025
Written by the Fiveable Content Team • Last updated September 2025
Definition
Purchasing power is the value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. It decreases as inflation increases, reducing the quantity of products or services you can purchase.
A general increase in prices and fall in the purchasing power of money.
Deflation: A decrease in the general price level of goods and services, which can increase purchasing power.
Currency devaluation: A reduction in the value of a currency with respect to other monetary units, affecting domestic purchasing power when buying imported goods