How does inflation affect the purchasing power of money?

• A. Inflation causes the value of money to remain constant over time.
• B. Inflation has no effect on the purchasing power of money.
• C. Inflation decreases the purchasing power of money, making goods and services more expensive.
• D. Inflation increases the purchasing power of money, allowing people to buy more with the same amount.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the concept of purchasing power, which refers to the quantity of goods and services that one unit of money can buy.
2. Step 2: Recognize that inflation is the general increase in prices of goods and services over time.
3. Step 3: Analyze how when prices rise due to inflation, each unit of money buys fewer goods and services than before.
4. Step 4: Conclude that inflation decreases the purchasing power of money because the same amount of money now has less value in terms of what it can purchase.
5. Step 5: Summarize that inflation makes goods and services more expensive, reducing the real value of money held by consumers.