Question

Why is it important to understand the concepts of inflation, present value, and future value of money as Saudi Arabia moves towards Saudi Vision 2030? What are some of the important terms and concepts that managers must understand in making decisions in today’s global environment? How will these factors affect Saudi Vision 2030?

Answer 1

It is quite important to understand the concepts of inflation, present value and future value of money as it is solely on the value of money that any business thrives or flourishes or any investor is interested. The return on the investment is the only concern of investor . It depends on the value of money.

Inflation is an economic term which refers to rise in price of goods and services within a particular economy. As the prices rise in general, the purchasing power of consumer decreases which will reduce the value of money. It increases cost and reduces competitiveness which can lead to fall in demand.

Present value of money is the value right now of some amount of money in the future. It's the current value of future cash flow. It involves both discounted rate and interest rates.

Future value of money is the value of future cash flow after specific future period or years. It is value of an asset at a specific date.

Important economic concepts are:

1. Trade off- it's an opportunity cost of one potential choice which is the loss of best available alternative.

2. Supply and demand- demand is the quantity of a good/service people are willing and able to buy at different prices. Supply is defined as how much of a good/service is offered at each price.

3. Scarcity- it is the concept that we have limited resources and cannot meet the unlimited demand.

Important economic terms are:

1. Business cycle- a business goes through different stages such as expansion, peak, contraction and trough.

2. Budget surplus- a period when income or receipts exceed outlay or expand. It indicates that the government is being effectively managed.

3. Budget deficit- it is the difference between receipts and expense in both revenue and capital account of government. If revenue expenditure of the government exceeds revenue receipts then it results in revenue account deficit.

Saudi vision 2030 is a vision which envisage to be independent and make the country a global leader in various segments. The vision envisaged by the crown Prince is to reduce the dependence on oil, to diversify it's economy and to develop sector such as health, education, infrastructure, recreation and tourism.

All the above mentioned factors will affect the vision 2030. This vision was conceived in the year 2016. So the value of money is to be calculated to the year 2030. Value of money depends on inflation, the economic and political factors and also on the global economic environment.

The vision will be affected by the business cycle, supply and demand and scarcity factors.