Which of the following best explains the concept of 'loss of purchasing power' due to inflation?
1
Inflation reduces the nominal value of money, decreasing the amount of money people have.
2
Inflation increases the real value of money, thereby increasing purchasing power.
3
Inflation decreases the real value of money, meaning each unit of currency buys fewer goods and services.
4
Inflation has no impact on the purchasing power in the short term.
5
Inflation equally increases nominal wages and prices, keeping purchasing power constant.