Define and quantify the loss of purchasing power?

Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter22: Inflation
Section: Chapter Questions
Problem 18RQ: What is deflation?
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Define and quantify the loss of purchasing power?

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Step 1 : Defining PP

Purchasing power (PP) is the real amount of good that we can obtain for a given amount of money. If the amount of good that we can obtain from a given amount of money decreases then we say that the PP has fallen.  Among various other factors one that results to a decrease in PP is inflation.

If inflation occurs then the price of goods/services increases and therefore we can buy fewer amount of goods/services with a given amount of money as a result of inflation. Thus, with rise in inflation the PP reduces.

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