Association of Chartered Certified Accountants (ACCA) Certification Practice Test 2026 - Free ACCA Practice Questions and Study Guide

Question: 1 / 990

What effect does price inflation have on money?

It increases its value

It reduces its purchasing power

When price inflation occurs, the overall price level of goods and services rises, which leads to the reduction of money's purchasing power. This means that a given amount of money buys fewer goods and services than it did before inflation. As prices increase, consumers find that they need more money to maintain the same standard of living, effectively diminishing the value of money in terms of what it can purchase. Therefore, the primary impact of inflation is the erosion of purchasing power, making this the correct choice.

The other options reflect misunderstandings of how inflation interacts with money's function in the economy. Inflation does not inherently make money more valuable or secure, nor does it stabilize an economy; rather, persistent inflation can lead to economic instability and uncertainty.

Get further explanation with Examzify DeepDiveBeta

It makes money more secure

It stabilizes the economy

Next Question

Report this question

Download Association of Chartered Certified Accountants (ACCA) Certification Practice Test PDF Study Guide
Subscribe

Get the latest from Examzify

You can unsubscribe at any time. Read our privacy policy