If the general price level rises, what happens to purchasing power?

Unlock all questions

This demo includes only 20 questions. Upgrade to access hundreds of questions, flashcards, exam simulations, and disable ads.

Full question bankExam simulationsFlashcards
From $25.99Unlock all

Study for the General Financial Literacy State Test. Prepare with flashcards and multiple-choice questions, each with hints and explanations. Enhance your financial expertise for success!

Multiple Choice

If the general price level rises, what happens to purchasing power?

Explanation:
Rising general price levels mean inflation, which erodes the purchasing power of money. When prices go up, each unit of money buys fewer goods and services. For example, if a loaf of bread costs $2 now and $2.20 later, your $2 buys less than before. If your income stays the same, you can afford fewer items, so purchasing power decreases. It doesn’t stay the same, and it doesn’t become unlimited, since higher prices don’t create more value for money.

Rising general price levels mean inflation, which erodes the purchasing power of money. When prices go up, each unit of money buys fewer goods and services. For example, if a loaf of bread costs $2 now and $2.20 later, your $2 buys less than before. If your income stays the same, you can afford fewer items, so purchasing power decreases. It doesn’t stay the same, and it doesn’t become unlimited, since higher prices don’t create more value for money.

More Multiple Choice Questions
Subscribe

Get the latest from Passetra

You can unsubscribe at any time. Read our privacy policy