alleryStart learning →Purchasing power is a function of which two things?
AInterest rates and the level of employment
BInflation and the income that a person earns
CTaxation and the savings a household holds
DWages and the exchange rate of the currency
Answer & Solution
Correct answer: B. Inflation and the income that a person earns
1. Purchasing power is the value of what money can buy.
2. It is a function of two things, inflation and income.
3. If incomes rise at the same rate as inflation, purchasing power does not change.
4. If prices rise while income does not, a given amount of income buys less and purchasing power falls.
5. Interest rates, taxes and exchange rates affect households but are not the two variables in this relationship.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 1 "Understanding Economic Systems and Business", section 1.4 Macroeconomics: The Big Picture_
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