The purchasing power of the Naira will fall when

Step 1: Analyze the question The question asks what causes the purchasing power of the Naira to fall. Purchasing power is the quantity of goods and services one unit of money can buy.

Step 2: The concept Purchasing power and the price level move in opposite directions:

• When prices rise, each Naira buys fewer goods, so purchasing power falls.
• When prices fall, each Naira buys more, so purchasing power rises.

Inflation is a persistent rise in the general price level. By definition, it reduces the value of money.

Step 3: Check each option

• A. Workers are retrenched: This leads to unemployment and lower incomes. It does not directly change the value of the Naira, so it is not the cause.
• B. The colour of the Naira is changed: This is only a cosmetic change. It does not affect how many goods the money can buy.
• C. The military take over: This is a political event. It does not by itself change the price level.
• D. There is inflation: Prices rise generally, so the Naira buys less. This is correct.
• E. None: Wrong, because D is correct.

Step 4: Answer The purchasing power of the Naira falls when there is inflation.

Exam tip: Remember "Inflation = money loses value." Whenever a question links purchasing power to a fall, look for words like "rising prices" or "inflation." The reverse, deflation, raises purchasing power.