What happens to purchasing power if inflation rises significantly?

When inflation rises significantly, purchasing power decreases. Inflation refers to the general increase in prices of goods and services over time. As prices rise, the same amount of money buys fewer goods and services than it did before. This means that consumers can afford less with their income, resulting in diminished purchasing power.

For example, if the inflation rate is high, the cost of everyday items such as groceries, gas, and rent tends to rise. If wages do not increase at the same rate as inflation, individuals find themselves unable to purchase as much as they could previously. Hence, the real value of money diminishes, and people experience a decline in their ability to buy the things they need or want.

The other options suggest outcomes that do not reflect the economic reality of inflation. A significant increase in purchasing power or remaining unchanged contradicts the nature of inflation, while suggesting that purchasing power becomes irrelevant disregards the fundamental impact inflation has on the economy and individuals' financial situations.