Economics Inflation Questions Medium
The relationship between inflation and the purchasing power of money is inverse. Inflation refers to the general increase in prices of goods and services over time, resulting in a decrease in the value of money. As inflation rises, the purchasing power of money decreases, meaning that the same amount of money can buy fewer goods and services. This occurs because as prices increase, the value of each unit of currency decreases. Therefore, inflation erodes the purchasing power of money, making it less valuable in terms of what it can buy. Conversely, when inflation is low or there is deflation (a decrease in prices), the purchasing power of money increases as the same amount of money can buy more goods and services.