Purchasing power

Purchasing power is the quantity of goods and services that a given income or wealth can buy at prevailing prices. It changes when income or prices change.

Price level: The average price of goods and services in an economy at a given time. A rise in the general price level reduces what a fixed sum can buy.
Purchasing power parity: An exchange-rate theory comparing currencies by the prices of equivalent baskets of goods and services. It uses relative buying power to compare currencies across countries.
Nominal value: A value stated in current monetary units without adjustment for changes in prices. A sum's nominal value can stay fixed while its purchasing power falls.
Hyperinflation: Extremely rapid and generally accelerating inflation that sharply reduces money's value. It can make a currency's purchasing power collapse within a short period.
Inflation: A sustained increase in the general price level of goods and services. Inflation erodes the amount of goods and services a fixed income can purchase.
Real wage: A wage adjusted for changes in consumer prices. It measures how much a worker's pay can actually buy.
Real value: A value expressed after adjusting for changes in the general price level. It allows monetary amounts from different times to be compared by buying capacity.
Cost-of-living crisis: A period when essential expenses rise faster than many households' incomes. It squeezes household purchasing power, especially for necessities.
Real income: Income adjusted for changes in the prices of goods and services. It expresses income in terms of the purchasing power it provides.
Disposable income: Household income remaining after direct taxes and transfers. It is the income available for consumption and saving.

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