How can inflation affect purchasing power?

When inflation occurs, it signifies an increase in the general price level of goods and services in an economy over a period. As prices rise, each unit of currency buys fewer goods and services than it did previously, leading to a decrease in purchasing power. This means that consumers can afford to buy less with the same amount of money than they could before the inflation took place. Therefore, the correct response emphasizes that inflation directly impacts how much can be purchased, effectively reducing the purchasing power of individuals.

The other options present misleading or incorrect interpretations of how inflation functions. For example, stating that inflation increases the purchasing power of money is contradictory to the fundamental concept of inflation, which shows that as prices rise, the value of money decreases. Similarly, claiming that inflation has no effect on purchasing power ignores the economic reality that inflation alters the relationship between money and the quantity of goods. Lastly, saying that inflation enhances the value of currency misrepresents the impact of inflation, as it inherently erodes the currency's value through increased prices. Thus, the chosen response accurately reflects the consequences of inflation on purchasing capacity.