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Inflation means an increase in general price level in an economy. When there is increase in price of goods we can buy less goods with given amount of money as compared to what we could buy before price rise with same amount of money. For example I have income of Rs 10000 and I can buy 5 goods with that now if prices of goods are doubled (inflation) I can buy less goods with same amount of money (Rs 10000).
Purchasing power of money is the amount of physical goods we can buy with it. Thus as per the example above rise in prices reduces purchasing power as number of physical goods you can buy reduces. Thus value of money reduces with inflation.
read lessInflation is increase or tendency to increase of price in the market over a period of time. As price increases with the same amount of money we can purchase less of the same product and hence purchasing power of the money is decreased. For example, if we purchase a product at price of 10 with 100 units of money we get 10 units of the product. Now due to inflation price of 10 becomes, say 10 + 2 = 12 where 2 is the increase in price. If we assume we still have only 100 units of money available with us we can purchase 100/12 = 8.33 units of the same product instead of 10 units of earlier. So the purchasing power of the 100 units of money has decreased from 10 to 8.33 due to the inflation of 20%, i.e. 10*20% = 2 units of price increase.
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Harsh Gupta
Well Experienced Teacher, Trainer and Mentor, Having a Experience of more than 5 years .
Inflation means the price of the product is increased for some time, it means your purchasing will be decreased. For example your going to buy a cycle, you the shopkeeper price he said Rs 5000, so you plan to buy but when you reach the shop price increases, say Rs 6000, but you have only Rs 5000, what you will do, you will postpone the for some time, now the shopkeeper who has the stock of the bicycle, he also faces loss because of low demand as demand decreases, which will impact supply also, means supply also increases, which means money in the market also decreases.
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