Purchasing power is the amount of value of a good/services compared to the amount paid with a
currency. Currencycan be either a commodity money, like goldor silver, or fiat currencylike US dollars which are the world reserve currency. As Adam Smithnoted, having money gives one the ability to "command" others' labor, so purchasing power to some extent is power over other people, to the extent that they are willing to trade their labor or goods for moneyor currency.
If money income stays the same, but the
price levelincreases, the purchasing power of that income falls. Inflationdoes not "always" imply falling purchasing power of one's real income, since one's money income may rise faster than inflation.
price index, its value in the base year is usually normalized to a value of 100. The purchasing power of a unit of currency, say a dollar, in a given year, expressed in dollars of the base year, is 100/"P", where "P" is the price index in that year. So, by definition the purchasing power of a dollar decreases as the price level rises.
The purchasing power in today's money of an amount "C" of money, "t" years into the future, can be computed with the formula for the
where in this case "i" is an assumed future
Purchasing power parity
Consumer Price Index
Collective buying power
* [http://www.measuringworth.com/ MeasuringWorth.com] has a [http://www.measuringworth.com/uscompare/ calculator] with 7 different measures for bringing US $ values from the late 1700s up to any year until 2006. The [http://www.measuringworth.com/worthmeasures.html Measures of Worth page] discusses which would be the most appropriate for different things.
* [http://demonstrations.wolfram.com/PurchasingPowerCalculator/ Purchasing Power Calculator] by Fiona Maclachlan,
The Wolfram Demonstrations Project.
Wikimedia Foundation. 2010.
Look at other dictionaries:
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