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What Is Purchasing Power?

Purchasing power refers to the amount of goods or services that can be paid for with one unit of currency. It reflects the capability of consumers to buy those goods and services with a certain amount of currency. Purchasing power increases directly with the amount of goods and services that can be bought with the same amount of currency. For example, if you have $100, the more goods and services that you can purchase with that amount, the higher your purchasing power.

This concept is used widely in the economic sector, and one common example used to explain the concept is this: go back in time, say to the 1960s. If you had $10 back then, you would have been able to buy a whole lot more at the supermarket than you would be able to buy with $10 today. In short, people back in the day had high purchasing power as compared to us.

There are ways by which we can increase our purchasing power, however. In the most basic sense, looking for alternatives can increase our purchasing power. Going back to the supermarket example - let’s say you have a set amount that you can spend. What you want is to be able to buy as many things as you can with that amount. What do you do? You bypass the gourmet section and ignore the high profile brands. Instead, you go look for cheaper alternatives - less known brands and the products on sale. This method allows you to buy more with the money you have on hand - it increases your purchasing power.

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