Question

What are the factors affecting the purchasing power and explain them.

Answer 1

Purchasing power is the value of a currency expressed interms of the amount of goods and services that one unit of money can buy.

The factors affecting purchasing power are:

1. Over Population: Large population leads to increasing demand. But supply was not equal to the demand. So, the normal price level will go higher.
2. Increasing price of essential goods: The continuous rise in the prices of essential goods erodes the purchasing power and adversely affect the poor people.
3. Demand for goods: When demand for goods increases, the prices of goods increases, then the purchasing power is affected.
4. Price of goods affect the value of currency: When prices increases, the purchasing power decreases, and finally the value of the currency decreases and vice versa.
5. Production and supply of goods: When the production and the supply of goods decrease, the price of the goods increases, then the purchasing power is affected.
6. Poverty and Inequality: In general, purchasing power is affected by poverty and unequal distribution of income and wealth.