- Purchasing power
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:
purchasing power — purchasing .power n [U] 1.) the amount of money that a person or group has available to spend ▪ increases in purchasing power 2.) the amount that a unit of money can buy ▪ The purchasing power of the local currency has halved … Dictionary of contemporary English
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purchasing power — 1) N UNCOUNT The purchasing power of a currency is the amount of goods or services that you can buy with it. The real purchasing power of the rouble has plummeted. 2) N UNCOUNT The purchasing power of a person or group of people is the amount of… … English dictionary
purchasing power — The ability to purchase goods and services. In times of inflation a loss of purchasing power occurs when monetary assets are held because of the decline in the purchasing power of the currency. If a company has monetary liabilities, a purchasing… … Accounting dictionary
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purchasing power — pur|chas|ing pow|er [ pɜrtʃəsıŋ ,paur ] noun uncount FORMAL 1. ) the ability of people to buy goods and services, usually based on how much they earn and save: The purchasing power of teenagers has increased enormously. 2. ) the value of a… … Usage of the words and phrases in modern English
purchasing power — noun (U) 1 the amount of money that a person or group has available to spend compared to other people: Widespread wage rises result in increased purchasing power. 2 the value of a unit of money considered in terms of how much you can buy with it … Longman dictionary of contemporary English
purchasing power — UK [ˈpɜː(r)tʃəsɪŋ ˌpaʊə(r)] / US [ˈpɜrtʃəsɪŋ ˌpaʊr] noun [uncountable] formal 1) the ability of people to buy goods and services, usually based on how much they earn and save The purchasing power of teenagers has increased enormously. 2) the… … English dictionary
purchasing power — / pɜ:tʃɪsɪŋ ˌpaυə/ noun the quantity of goods which can be bought by a particular group of people or with a particular sum of money ● the purchasing power of the school market ● The purchasing power of the pound has fallen over the last five… … Dictionary of banking and finance