Final answer:
Inflation decreases purchasing power, as the general level of prices goes up, reducing how much can be bought with the same amount of money and affecting the real return on investments, especially when interest rates are lower than the inflation rate. Therefore, the correct option is B.
Step-by-step explanation:
Inflation can decrease purchasing power, which reduces the amount of goods and services a person can afford. Purchasing power refers to the value of currency expressed in terms of the number of goods or services that one unit of money can buy. When inflation occurs, the general level of prices goes up, diminishing the amount of goods and services you can buy with a given amount of money.
For instance, if a person has money in a savings account that earns an interest of 4%, but inflation is at 5%, the real interest rate is effectively -1%, indicating a loss of purchasing power. This makes it clear that inflation doesn't just affect consumers, but also influences the real return on investments.