Answer to Question #15905 in Economics of Enterprise for Nur Hidayati
services. It is measured as an annual percentage increase. As inflation rises,
every dollar you own buys a smaller percentage of a good or service.
The value of a dollar does not stay constant when there is inflation. The value of a
dollar is observed in terms of purchasing power, which is the real, tangible
goods that money can buy. When inflation goes up, there is a decline in the
purchasing power of money. For example, if the inflation rate is 2% annually,
then theoretically a $1 pack of gum will cost $1.02 in a year. After inflation,
your dollar can't buy the same goods it could beforehand.
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