What term defines the amount of goods and services money can buy, which falls when inflation outpaces savings growth?

• A. Inflation rate
• B. Purchasing Power
• C. Nominal value
• D. Interest earnings

Answer: (B)

Purchasing power is the ability of money to buy goods and services. When inflation grows faster than your savings, prices rise and your money buys less than before, so your purchasing power falls. For example, if inflation is 4% and your savings grow only 2%, your money effectively buys about 2% fewer goods next year, reducing real value even though the nominal amount increases. The other terms don’t capture this idea: inflation rate is how fast prices rise, nominal value is the face amount without adjusting for price changes, and interest earnings are just the money you earn on savings.