What is purchasing Power of Money?
Purchasing power of money refers to the quantity of goods and services that can be purchased
with it.
Eg: If a person has Rs 60 and want to buy biscuits
Now, the cost of 1 packet of biscuit is Rs10
Here the money can buy 6 packets of biscuit
What causes Deterioration in Purchasing Power of Money?
Inflation in price levels of goods and services cause deterioration in purchasing power of money
Inflation refers to the increase in general price levels of goods and services.
Eg: In 2015
Eg: If a person has Rs 60 and want to buy biscuits
Now, the cost of 1 packet of biscuit is Rs10
Here the money can buy 6 packets of biscuit
(60/10=6)
Now, in 2021
The person has Rs100 to spend on biscuits
The cost of 1 packet of biscuit has increase to Rs 12 because of inflation
As a result, the money in 2021 can only buy 5 packets of biscuit
(60/12=5)
So, we can see that the purchasing power of money has decreased due to inflation
