During inflation, the purchasing power of money generally decreases.

During inflation, the purchasing power of money generally decreases.

• A. True
• B. False
• C. Sometimes
• D. Never

Answer: (A)

When prices rise over time, money buys less. Inflation means the overall price level is increasing, so the same amount of money buys fewer goods and services than before. For example, if prices go up 5% over a year, something costing $100 today would cost about $105 next year, so $100 buys less than it did before. That’s why the statement is true. The other options don’t fit because inflation by definition reduces purchasing power over time, it’s not something that happens only sometimes, and it certainly isn’t that purchasing power never declines.

When prices rise over time, money buys less. Inflation means the overall price level is increasing, so the same amount of money buys fewer goods and services than before. For example, if prices go up 5% over a year, something costing $100 today would cost about $105 next year, so $100 buys less than it did before. That’s why the statement is true. The other options don’t fit because inflation by definition reduces purchasing power over time, it’s not something that happens only sometimes, and it certainly isn’t that purchasing power never declines.