How does deflation typically impact purchasing power?

Deflation refers to a decrease in the general price level of goods and services in an economy over a period of time. When deflation occurs, the prices of many items fall, which effectively means that consumers can purchase more with the same amount of money. This situation leads to an increase in purchasing power because individuals are able to buy more products and services for less money than before.

As the prices decrease, the value of money increases; people can buy a greater quantity of goods and services without needing to earn more income, making their economic situation relatively stronger. This increase in purchasing power can lead to various consumer behaviors, such as increased spending if consumers perceive that they can afford more, but it can also lead to reduced spending if individuals anticipate further price drops and choose to hold onto their money, waiting for even lower prices in the future.

In summary, deflation contributes to an increase in purchasing power, allowing consumers to maximize their consumption with the same financial resources.