What Is Inflation - Financial Literacy - أول ثانوي

3 sa Saving صلية لا Why do people save money?

دوارت التعليم 7027-1445 LESSONS 3.1 What Is Inflation? 3.2 What Is Budgeting? What Are Record-keeping 3.3 Methods? 3.4 What Is Financial Planning? hen you begin to become fi- Wnancially independent and earn your own income, it is important to save money as well as understand how to spend it responsibly. Saving money means putting it aside in a safe place such as a savings account, often in or- der to achieve specific financial goals such as making a large purchase, in- vesting, or setting up a business. In this chapter, you will look at how to budget and make financial plans to ensure that you can afford larger future purchases. You will also begin to understand how Inflation affects the value and purchas- ing power of your money. 79

Link to digital lesson 回 www.leneda.ca 3.1 What Is Inflation? Learning Objective Once you have completed this lesson, you should be able to: explain what inflation is and how it is measured ⚫ describe how inflation affects purchasing power. Key Terms Inflation Consumer Price Index (CPI) Retail price Basket of goods and services Purchasing power Time value of money Intiation an inoase the general level of prices for youds and services Inflation In 2011, the average price of a meal for two people at a mid-range restaurant in Riyadh was SAR 71.25. Today, the price you will pay for the same meal is SAR 185. It is not only food items which cost more - everything else does as well. This is due to faflation. Inflation reflects how much prices rise over time. How much did a larger cost in 2007 Mow much does It Coss Joday? وزارة التعليم 80 Financial Literacy

وزارة التعليم 173-1445 2000 Measuring Inflation Inflation is measured by the General Authority for Statistics in Saudi Arabia. Inflation is measured using a tool called the Consumer Price Index (CPI). The General Authority measure the percentage change in the retail price of a basket of goods and services. The Saudi Arabian basket of goods and services usually includes: ⚫ food and beverages housing and utilities furnishing and household goods ⚫ clothing and footwear transportation and communication. The CPI compares the prices of the goods and services in the market basket to see how they have changed from year to year. For example, if the price of an item was SAR 1.00 in the previous year and it is now SAR 1.12, that is a 12% increase in the price: SAR 1.12-SAR 1.00 SAR 1.00 Figure 3.1.1 below shows the inflation rates measured by the CPI since 2000. Consumer Price Index LCPO measures the average change In prices paid by consumers over a period of time for a basket of goods and services the price that customers pay for goods in stores. Barkat of goods and SERVICES represents a typical family's spending and is used to measure CPI 10 8 2002. 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 FIGURE 3.1.1 Saudi Arabian Inflation Rate 2000 to 2022 [Sources: Macro- trends and the World Bank) Would it have been better for someone to buy then fist house in 2019 20207 Why? CHAPTER 3 Saving 81

Purchasing power the value of money, measured by the amount of goods and sex vices it can buy Time value of money concept that says à Riyal you receive in the future will be worth less than a Riyal you receive in the present (today) وزارة التعليم of Equ 82sFinancial Literacy Inflation Versus Purchasing Power The purcing power of your Riyal changes over time. The value of a Riyal does not remain the same when there is inflation. As inflation rises, the true purchasing power of each Riyal falls. Because purchasing power falls over time as inflation rises, the wages and salaries that workers earn will buy less as prices rise. That means you must earn more every year to maintain the same standard of living. While employers can increase your pay every year, it does not actually mean your standard of living will change: If your pay rise is equal to the inflation rate, then your standard of living does not change. If your pay rise is higher than the inflation rate, then your standard of living may increase. ⚫ If your pay rise is lower than the inflation rate, then your standard of living will decrease. During times of inflation, you must also consider how the affects purchasing power. The concept assumes on that prices are rising. For example, suppose you purchased a burger for SAR 20 in 2013. You go back to the restaurant in 2023 with SAR 20 only to discover that burgers are now priced at SAR 26: The money you have today has less value than it did ten years ago. -Prices are higher due to inflation. SAR 20 today does not buy as many goods and services. Inflation Versus Gross Domestic Product A common method used to measure a country's economic performance is gross domestic product (GDP). This is a key term we discussed in Chapter 1. The GDP of a country is the total value of all the finished goods and services produced within the country's borders. It includes the production of new goods and services that consumers purchase

within the country, such as cars, smartphones, cloth- ing, and haircuts, as well as government spending on infrastructure projects such as toads and highways, and basic services like police and defense. Products exported to other countries are also included in GDP. The largest percentage of Saudi GDP is from exports of crude petroleum. However, non-oil exports have been growing, and increased by 29.4% in the first three months of 2022. Comparing the GDP over several years is a good indicator of whether the economy is strong or weak. When the GDP is growing, the country is producing more goods and services. This generally results in more jobs, more income for consumers to spend, and a higher standard of living. The opposite is true when GDP is falling. When evaluating GDP, inflation is a factor. If prices are going up, an increase in GDP could be the result of inflation rather than higher وزارة التعليم DINMAL OF EMULZI 2023-1445 What are the inain exports of Sauli Nana? CHAPTER 3 Saving 83

وزارة التعليم 84 Financial Literacy production levels. For example, if GDP increased by 4% last year, but prices in general increased by 2%, then only about 2% more goods and services were produced. This is GDP adjusted for inflation. LOOKING AHEAD What type of industry do you want to work in when you are older? Is this industry highlighted in Vision 2030? Review Questions Choose the correct answer. 1. Inflation increases the cost of a product over time. a. true b. false 2. Which of the following is NOT found in the CPI baskel of goods? a. food and beverage b. transport c. crude petroleum d. housing and utilities 3. Which of the following has no impact on GDP? a. consumer purchases b. exported goods c. imported goods d. govemment spending on infrastructure 4. When GDP is falling, the country is producing more goods and services. a. true b. false 5. Which of the following is incorrect? a. The purchasing power of a Riyal does not change over time. b. Inflation changes the value of a Riyal. c. Purchasing power measures the amount of services a Riyal can buy. d. As inflation rises, the purchasing power of a Riyal falls.