When prices rise, the purchasing power of money decreases. Inflation reduces the value of money because you can buy fewer goods and services with the same amount of money. This means that you will need to spend more money to purchase the same amount of goods and services that you could've bought for less before the price increase.

Solved

When Prices Rise

Question 72

Multiple Choice

When prices rise,

A) the purchasing power of money increases
B) the purchasing power of money decreases
C) the purchasing power of money remains unchanged
D) the purchasing power of money either increases or decreases,depending upon the size of the national debt
E) the purchasing power of money either increases or decreases,depending upon the level of government expenditures

Correct Answer: