Purchasing Power
Ability to buy goods/services; determined by income and price levels.
Formula
Purchasing Power = Nominal Income ÷ Price Level
Real World
During the UK's 2022–23 cost-of-living crisis, wages rose by around 5% but inflation hit 11%, meaning workers' real purchasing power actually fell sharply despite nominal pay rises.
Exam Focus
Always distinguish nominal from real values; examiners specifically reward candidates who link inflation rates to changes in real purchasing power.
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