What happens to money's buying power when inflation rises?

• A. Money's purchasing power stays the same.
• B. Prices stay the same but wages rise.
• C. Inflation makes prices rise, so money buys less over time.
• D. Inflation only affects interest rates.

Answer: (C)

Inflation makes the prices of goods and services go up, so the amount of stuff your money can buy falls over time. When prices rise, the same amount of money buys fewer items or services than before. For example, if a snack costs $1 today and prices rise 3%, that snack might cost about $1.03 next year, meaning your dollar doesn't go as far. Wages might go up too, but not always enough to keep up with higher prices, so your overall buying power can still drop. Inflation isn’t just about interest rates; it directly changes how much you can buy with the money you have.