How does inflation impact purchasing power?

Inflation refers to the overall rise in prices of goods and services in an economy over time. When inflation occurs, each unit of currency buys fewer goods and services than it did previously. This decline in the purchasing power of money means that people can afford to buy less with the same amount of money as prices rise.

For example, if the inflation rate is high, the cost of everyday items like groceries, gas, and housing will increase, meaning that consumers need to spend more money to maintain their previous standard of living. As a result, the value of money diminishes, effectively diminishing what consumers can purchase. Therefore, as inflation occurs, it directly correlates with a decrease in purchasing power, making the correct choice clear: inflation decreases the value of money, leading to reduced purchasing power over time.

The other options do not align with the fundamental concept of inflation. While some might suggest that inflation reduces available money or has no effect on purchasing power, such assertions overlook the basic economic principles governing inflation and its tangible impact on consumer spending. Similarly, the idea that inflation increases the value of money contradicts the very definition of inflation itself.