Question 3

Credit Experience provide personal budgetary advice to retireed clients. A number of clients are concerned that they are experiencing financial deficits at the end of the financial year and require a more accurate and considered outcome.

You recognise your forecasts could be improved if you adopt a number of economic principles into your work practices.

a.Outline how incorporating the following two (2) economic principles that may improve your forecasts and provide a more accurate outcome for the clients:

1. Impact of inflation

2. Changes in Monetary Policy (interest rates)

b.With Australia experiencing low inflation and low interest rates your employer requests that you contribute to a newsletter for clients which explainsthe relationship between inflation and interest rates. In your response distinguish between nominal and real interest rates and refer to the Fisher Effect.Use figures to assist the clients understanding of the relationship.