KPDS 1996-2 Soru=89

When there is inflation the purchasing power of any given amount of money ____ .

Inflation is process of steadily rising prices, resulting in a
diminishing of the purchasing power of a given nominal
sum of money. In other words, you can buy fewer goods
for 1 pound in December than you could in January of the
same year. One type of inflation is known as demand-pull
inflation. This occurs under conditions of full employment,
when demand exceeds supply of goods; that is to say,
when people want to buy more goods than are available.
The process of demand-pull inflation operates as follows.
An increased demand for goods leads to an increased
demand for labour, resulting in higher wages and salaries.
This has the effect of increasing costs of production and
thus causes increased prices. However, as wages and
salaries are higher, the increased demand for goods
continues, and so the cycle goes on.