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 cost-of-living crisis in 2022–23, workers who received 3% pay rises while inflation hit 11% saw their real purchasing power fall sharply, cutting discretionary spending.
Exam Focus
Always distinguish nominal income from real income — failing to apply price level changes is a common mark-losing error.
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