Purchasing power
In
economics,
purchasing power refers to the amount of goods and services a given amount of
money â€" or, more generally,
liquid assets â€" can buy. As
Adam Smith noted, having money gives one the ability to "command" others' labor, so purchasing power to some extent is power over other people.
If money income stays the same, but the price of most goods go up, the effective purchasing power of that income falls. Falling purchasing power can thus be part of
inflation. However, inflation does not
always imply falling purchasing power of one's income, since one's money income may rise faster than inflation. In inflation, there are some winners
and some losers.
The formula for purchasing power is extremely complex.
*
Purchasing power parity*
Consumer Price Index
