What Is a Money Purchase Plan?

The purchasing power of money refers to the ability to purchase goods or exchange service labor per unit of currency. It is the result of the comparison between the value of money and the value of commodities. It is inversely proportional to changes in the value of commodities and directly proportional to changes in the value of money. Under the condition of constant currency value, the higher the value of the commodity, the lower the purchasing power of the currency; conversely, the lower the value of the commodity, the higher the purchasing power of the currency. Under the condition that the value of the commodity is constant, the greater the value of the currency, the higher the purchasing power of the currency; conversely, the smaller the value of the currency, the lower the purchasing power of the currency. ^[1]

Purchasing power of money

When the value of money does not change, the commodity or

The purchasing power of money is essentially how much money a certain amount of money can buy in the market, and it must ultimately be determined by the market.

If there is no competition, the cooperating parties can allocate the cooperative surplus in the entire reciprocity space according to various transaction prices; and competition will reduce the allocation of the remaining transaction price space, so that part of the reciprocal space will not be the scope of game pricing considerations; The pricing space will shrink and converge towards the auction equilibrium price. The existence of currency makes competition intensify, so that the transaction price is close to the equilibrium price of the auction.

When people's transactions use currency as the transaction medium, people's transactions become the exchange of some specific commodity with currency. At this time, a big problem that people encounter is: if the purchasing power of currency cannot be accurately known, how do you decide the corresponding transaction price? It is impossible for a trader to first take the traded goods to the future to obtain the experience of the final consumption results, and then return to the moment of the transaction (so as to know how much the various quantities of goods can bring to themselves) to trade. decision making. After the transaction is completed, people will really consume the traded goods in the future. It is likely that the final utility result will be quite different from what they did at the time of the transaction, because there are too many factors that affect people's preferences, and they are often fickle. (When making trading decisions, people often don't fully know the specific preferences for future consumption).

But economic theory cannot be stopped by uncertainty. The approach of economists is to abstract away uncertainty to some extent. Rational assumptions in economics allow us to analyze on the basis of stable preferences. In reality, although the official is continuously publishing various price indices, because different people use currencies to trade for different goals, the actual purchasing power of money will be different for each person (statistical weights of different people) Not the same), this is the structural feature we mentioned earlier. When people do not know exactly the purchasing power of money for themselves, people have to estimate a corresponding purchasing power value and use it as the basis for trading decisions. Then with the increase of relevant information they have, people continue to modify their estimates. We can abstract people's estimates of their purchasing power of money in each transaction to make it rational. Therefore, based on the auction equilibrium prices of various commodity markets, competitors with monopoly power will determine the market transaction price through the game. These transaction prices will change with changes in various factors, and people will also adjust their estimates of their respective currency purchasing power when making trading decisions in the future based on their changing laws.