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GDP and Inflation

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

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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 ...

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