Which scenario describes a fall in purchasing power?

• A. Inflation rising faster than savings growth
• B. Prices stable but wages rise
• C. Savings growing faster than inflation
• D. Deflation occurring

Answer: (A)

Purchasing power is what your money can buy in goods and services. It falls when prices go up (inflation) faster than your money or savings grow in real value.

In this scenario, inflation is rising faster than savings growth, so the real value of your saved money declines. Even though you’re saving, you can buy fewer goods with the same amount because prices are increasing faster than your savings are growing. That drop in what your money can buy is a fall in purchasing power.

Why the others don’t fit: if prices are stable but wages rise, your purchasing power increases because you can buy more with higher income. If savings grow faster than inflation, your purchasing power also increases. Deflation means prices fall, which would increase purchasing power rather than decrease it.