Hi
'I cant understand how did they calculate the 1 year trend in consumer spending and inflation to be 4% and 10% respectively?
Please help me with the question (I have posted the question as well as the solution below)
Question 11 Pg 122 Reading 16
Plim Ltd. is a manufacturing company in Finland that is a defined-benefit pension plan sponsor. Plim intends to increase its overall plan diversification by making an investment in Country X. The table below provides data for Country X indexes representing various economic variables.
Based only on the data presented, from the perspective of year-end 2011, indicate whether the 1-year trend for each of the economic variables is stronger than, weaker than, or the same as its 3-year and 20-year data trend growth rates.
Economic Index Data for Country X Variable** Year-End 2008 Year-End 2009 Year-End 2010 Year-End 2011 20-Yr. L/T Average Annual % Increase** GDP 118.3 121.3 124.3 127.4 4.2 Consumer spending 1,569.2 1,596.2 1,584.3 1,647.7 2.5 Business spending 650.1 632.0 707.8 726.9 2.6 Inflation 2,749.8 2,901.1 3,133.1 3,446.4 14.3 Government spending (% of GDP) 16.2 16.5 16.0 15.8 3.6
Solution in book
To address the question, we first convert the data from the table into trend information (1-year, 3-year, and long-term 20-year trend information). The time periods are from the perspective of the end of 2011.
Trend Comparisons** 1-Year Trend 3-Year Trend 20-Year TrendGDP 2.5% 7.7% (2.5% compound average annual growth) 4.2% Consumer spending4.05.0 (1.6% compound average annual growth) 2.5 Business spending 2.7 11.8 (3.8% compound average annual growth) 2.6 Inflation10.0** 25.3 (7.8% compound average annual growth) 14.3 Gov’t. spending (% of GDP) −1.25 −2.5 (−0.8% compound average annual growth) 3.6
Based on the above comparisons, our conclusions about current trends witnessed over the past year for the economy of Country X relative tolonger-term 3-year and 20-year trends are reflected in the table below.
Trend Analysis** 1-Year Trend 3-Year Trend 20-Year Trend GDP 2.5% 1-year trend is the same as the average annual GDP growth 3-year trend of 2.5%. 1-year trend of GDP growth is weaker than the 20-year trends. Consumer spending 4.0 1-year trend is stronger than average annual consumer spending growth 3-year trend of 1.6%. 1-year trend is stronger than the average annual consumer spending growth 20-year trend of 2.5%. Business spending 2.7 1-year trend is weaker than the average annual business spending growth 3-year trend of 3.8%. 1-year trend is stronger than the average annual business spending growth 20-year trend of 2.6%. Inflation 10.0** 1-year trend is weaker (higher inflation) than theaverage annual inflation growth 3-year trend of 7.8%. 1-year trend is stronger (lower inflation) than theaverage annual inflation growth 20-year trend of 14.3%. Gov’t. spending (% of GDP) −1.25 1-year trend is weaker than the average annual govt spending growth 3-year trend of −0.8%. 1-year trend is weaker than the average annual govt spending growth 20-year trend of 3.6%.