Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
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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