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PFIN 2nd Edition by Lawrence Gitman ,Michael Joehnk,Randall Billingsley
Edition 2ISBN: 978-1111821999PFIN 2nd Edition by Lawrence Gitman ,Michael Joehnk,Randall Billingsley
Edition 2ISBN: 978-1111821999 Exercise 1
Summarize current and projected trends in the economy with regard to GDP growth, unemployment, and inflation. How should you use this information to make personal financial and career planning decisions?
Explanation
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Real GDP is an inflation-adjusted assessment that reveals the value of all goods and services manufactured during a given year. Real investment is the part of aggregate expenditure. GDP is an important indicator of economic activity. If there is an increase in GDP, then the economy is in a growth trend and things are favorable.
Unemployment is probably low and plenty of jobs are available. In a slow moving GDP, the jobs are scarce. If there is inflation, then the purchasing power of the people declines and people would want more money to achieve their financial goals. Inflation represents the upward movement in the economy. It raises the general level of prices and decreases the value of money over a period of time.
Inflation plays a very vital role in financial planning. The most common measure of inflation is the consumer price index (CPI). It affects not only what we spent for purchasing goods and services but also what we earn in our jobs. Based on inflation, unemployment and real GDP, we can plan our financial goals and needs in our personal lives. Suppose due to high inflation, the interest rates are increased and cost of borrowing is also increased. The higher interest rates may cause higher mortgage payments, higher monthly payments etc. Therefore, according to these higher interest rates we can plan our personal financial needs.
Hence, we clearly understand how the inflation real GDP will showed some impact on our personal financial and career planning decisions.
Unemployment is probably low and plenty of jobs are available. In a slow moving GDP, the jobs are scarce. If there is inflation, then the purchasing power of the people declines and people would want more money to achieve their financial goals. Inflation represents the upward movement in the economy. It raises the general level of prices and decreases the value of money over a period of time.
Inflation plays a very vital role in financial planning. The most common measure of inflation is the consumer price index (CPI). It affects not only what we spent for purchasing goods and services but also what we earn in our jobs. Based on inflation, unemployment and real GDP, we can plan our financial goals and needs in our personal lives. Suppose due to high inflation, the interest rates are increased and cost of borrowing is also increased. The higher interest rates may cause higher mortgage payments, higher monthly payments etc. Therefore, according to these higher interest rates we can plan our personal financial needs.
Hence, we clearly understand how the inflation real GDP will showed some impact on our personal financial and career planning decisions.
PFIN 2nd Edition by Lawrence Gitman ,Michael Joehnk,Randall Billingsley
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