1 How does the health of the economy affect your financial h

1. How does the health of the economy affect your financial health? How healthy is the U.S. economy right now? On what measures do you base your judgments? How will your appreciation of the big picture help you in planning for your future?

2. You need a jacket, boots, and gloves, but the jacket you want will use up all the money you have available for outerwear. What is your opportunity cost if you buy the jacket? What is your sunk cost if you buy the jacket? How could you modify your consumption to reduce opportunity cost? If you buy the jacket but find that you need the boots and gloves, how could you modify your budget to compensate for your sunk cost?

Solution

1.A country is an organization of individuals—when something affects the country, it also affects the individuals, and vice versa. Thus, it would be untrue to say that if recession or boom hits a country, individuals are not affected by it.

US economic health is good but not great.  America\'s economy grew at a 3.9% annual pace in the third quarter of this year. That was an upward revision from the advance estimate, of 3.5%. It came on the heels of a second quarter in which real output expanded at a 4.6% rate. Indeed, in four of the last five quarters GDP has increased by 3.5% or more (and by 4.5% or more in two of the last five quarters). The American economy hasn\'t strung together five quarters like that since the late 1990s. Neither is that the only encouraging indicator. Over the last year employment has grown at the fastest pace since 2006 and the pace of hiring seems to be trending upward.

2. If you buy the jacket, you cannot also buy the boots. Not getting the boots is an opportunity cost of buying the jacket; it is cost of sacrificing your next best choice.

The money you spent on your jacket is a sunk cost. If it snows next week and you decide you really do need boots, too, that money is gone, and you cannot use it to buy boots. If you really want the boots, you will have to find another way to pay for them.