How does inflation affect purchasing power?

Inflation is the rate at which the general level of prices for goods and services rises, leading to a decrease in the purchasing power of money. When inflation occurs, each unit of currency buys fewer goods and services than it did previously. As prices increase, consumers find that their incomes do not stretch as far as they once did, effectively reducing the amount of goods and services they can purchase with the same amount of money. This phenomenon illustrates how inflation directly impacts the value of money, leading to a reduction in purchasing power over time.

In contrast, increases in purchasing power would suggest that individuals could buy more with less money, which is contrary to the effects of inflation. The other options either imply no change or a stabilizing effect on purchasing power, which does not align with the reality of how inflation operates. Thus, C accurately captures the relationship between inflation and purchasing power, highlighting that as inflation rises, purchasing capacity diminishes.