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GDP and Inflation

Let us assume that economic forecasts are predicting falling GDP (Gross Domestic Product) coupled with high inflation over the next couple of years. Based on this information, if you were a portfolio manager what would your recommendations be for investing in the construction industry? Why? What about in the health care industry? Why?

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As for investing in the construction industry, I (in the above scenario) would advise against it. The GDP is a measure of all things produced by all persons and all comapnies within a country. Therefore, if the GDP is expected to fall, all output will fall. Now, this does not necessarily stipulate that construction will fall, but on a whole, the average industry will decline.

However, if inflation is ...

Solution Summary

The solution describes the effects of falling GDP and high inflation.