Inflation is a vital concern to financial planning. It affects not only what we pay for our goods and services but also what we earn in our jobs. The amount of goods and services each dollar buys at a given time is:
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A. B. C. D.A
The correct answer is A. Purchasing power.
Inflation is the general increase in prices of goods and services in an economy over time. As prices rise, the purchasing power of a given amount of money decreases, meaning that each dollar can buy fewer goods and services than before.
Purchasing power is the value of money in terms of the amount of goods or services that can be purchased with it. It is the ability of a currency to buy goods and services, and it varies depending on the level of inflation in the economy.
For example, if the inflation rate is 2%, then the purchasing power of a dollar decreases by 2%. This means that if you could buy a loaf of bread for $1 last year, you would need $1.02 to buy the same loaf of bread this year.
Inflation can also affect what we earn in our jobs. When inflation is high, employers may need to raise wages to keep up with the rising cost of living. However, if wages do not keep up with inflation, the purchasing power of a person's income decreases, and they may struggle to maintain their standard of living.
In summary, inflation erodes the purchasing power of money, making it important to consider when planning finances. The amount of goods and services each dollar buys at a given time is known as purchasing power.