How does inflation affect purchasing power?

Inflation impacts purchasing power by eroding the value of money over time. When inflation rises, the costs of goods and services increase, meaning that consumers need more money to buy the same items they could have purchased for less in the past. As a result, individuals find that their incomes buy fewer goods and services than before, leading to a decrease in purchasing power.

In an environment of inflation, the same amount of money results in fewer purchases, directly illustrating how people are affected. Consequently, while nominal income may remain unchanged, the real value—the purchasing power—diminishes as prices increase. This makes C the correct choice, as it accurately describes how inflation negatively influences the purchasing power of consumers.

In contrast, options that suggest inflation increases, stabilizes, or has no effect on purchasing power misinterpret the relationship between prices and the value of money.