ECO 306
Short Paper # 1 – The Financial System
Over the course of our adult lives most of us constantly need to buy products and services to support our daily needs. We buy food, electricity, gas, appliances, cars, houses, pay for phone and cable services, for piano lessons, haircuts, house repairs and many more. The constant money outflow is supported by cash inflows from paychecks, investments, and other sources of income. Unfortunately, while in the last couple of years economy is slowly improving, the median household income, according to a report by the Sentier Reasearch Group, has declined by 4.4% since the beginning of recovery in 2009. Along with the decline in income most families (ours included) have to cope with increased prices on most consumer products. Based on Bureau of Labor Statistics inflation calculator, inflation last year was 1.47%. while in the last 10 is a whopping 25.09%. How does it affect us, and me personally, as customers? Inflation is a general increase in prices on consumer goods and services, measured as percentage increase. When inflation rises every dollar’s buying power is less than before. Today’s $100 could buy me what $79.94 could buy in 2004. If salaries were adjusted for inflation, for example $70,000 in 2008 should be $76,824.34 in 2014 to have the same buying power as the $70,000 in 2008. While some companies have inflation adjustment policy, not all of them do, and the company my husband works for is among them. To try to balance that, we decided that relatively low mortgage rates are a good reason