Question

Describe purchasing power while also providing an example of decreased purchasing power? This needs to be an example from your life.

Answer 1

Purchasing power is the real value of your earning or technically stated, "the value of currency in terms of the amount of goods and services that one unit of that currency can buy."

If I have $x in my pocket and I go out to buy groceries, the amount of the purchase that i can make is my purchasing power. Suppose that certain items in my to buy list have become more expensive than earlier. This will hurt my pocket because I still have only $x in my pocket but the amount or quantity of purchases that I can now make will be lesser than what I could before the price rose.

That is a fall in purchasing power. Inflation, for this reason reduces the purchasing power and deflation increases it.