A person's purchasing power is a function of income, wealth, and credit.
Purchasing power of money is the ability of a currency when you convert it to goods and services. Purchasing power of money also can be described as the conversion rate of money towards goods and services. Purchasing power of money also known as the real value of money.
The purchasing power of money is an important indicator in making decisions. If purchasing power drops, you get less product using the same amount of money as before. The main determinant of the purchasing power of money is price. The purchasing power of money decreases as the price increases. We use the term price level to represent the average price of various goods and services in the economy at the aggregate level. The increase in the price level we call inflation.
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