Great Depression vs Current Recession
The Great Depression and the Current Recession
David Gillies, Melissa Phillips, Chad Ruter, and Pat Warren
University of Sioux Falls
Consumer Price Index
The consumer pricing index (CPI) is a measure of the price level of consumer goods and services. The U.S. Bureau of Labor Statistics began calculating and issuing the monthly calculation in 1919. The CPI is calculated by observing price changes among a wide range of products and weighing these price changes by the share of income consumers spend to purchase them. The CPI focuses on approximating a cost of living index and can be used to evaluate our currency and prices. CPI is defined as “a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services” (Federal Reserve Bank, 2010). The consumer pricing index can be used for three things “(1) as a Cost of Living Index (COLI); i.e., as a measure of the relative cost of achieving the standard of living when facing two different sets of prices for the same group of commodities; (2) as a consumption deflator; i.e., the price change component for a decomposition of a value ratio into price and quantity components and (3) as a measure of general inflation” (Federal Reserve Bank, 2010).
The CPI is used to understand whether the economy is experiencing a period of inflation or deflation, as well as the severity of the upturn or downturn. “Economists generally agree that deflation is a widespread fall in prices, as measured by the consumer price index” (Gross, 2010). To be considered deflation the consumer price index would need to decline for at least one year. For consumers, a fall in prices may sound like a benefit, but in fact, the ripple effect of deflation can include increased unemployment rates, instability in the stock market, decreased home values, and a general decline in the economy. Businesses tend to minimize their investments during a period of deflation to prevent severe
David Gillies, Melissa Phillips, Chad Ruter, and Pat Warren
University of Sioux Falls
Consumer Price Index
The consumer pricing index (CPI) is a measure of the price level of consumer goods and services. The U.S. Bureau of Labor Statistics began calculating and issuing the monthly calculation in 1919. The CPI is calculated by observing price changes among a wide range of products and weighing these price changes by the share of income consumers spend to purchase them. The CPI focuses on approximating a cost of living index and can be used to evaluate our currency and prices. CPI is defined as “a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services” (Federal Reserve Bank, 2010). The consumer pricing index can be used for three things “(1) as a Cost of Living Index (COLI); i.e., as a measure of the relative cost of achieving the standard of living when facing two different sets of prices for the same group of commodities; (2) as a consumption deflator; i.e., the price change component for a decomposition of a value ratio into price and quantity components and (3) as a measure of general inflation” (Federal Reserve Bank, 2010).
The CPI is used to understand whether the economy is experiencing a period of inflation or deflation, as well as the severity of the upturn or downturn. “Economists generally agree that deflation is a widespread fall in prices, as measured by the consumer price index” (Gross, 2010). To be considered deflation the consumer price index would need to decline for at least one year. For consumers, a fall in prices may sound like a benefit, but in fact, the ripple effect of deflation can include increased unemployment rates, instability in the stock market, decreased home values, and a general decline in the economy. Businesses tend to minimize their investments during a period of deflation to prevent severe
References: Christensen, J. (2009). Inflation expectations and the risk of deflation. FRBSF Economic Letter. 34(1). Gross, D The Federal Reserve Bank of St. Louis. (2010). Measuring the great depression. Retrieved from http://www.stlouisfed.org/greatdepression/pdf/GD_d-lesson_1.pdf Isidore, C Livingston, J. (2009, May-June). Their great depression and ours. Challenge Magazine, 52( 3) 34-51. Field, A. (2009, July-August). The great depression, the new deal, and the current crisis. Challenge Magazine, 52 (4) 94-105. Schiller, R. (2008). The subprime solution. Princeton, New Jersey: Princeton University Press Watkins, T Winkler, A. (1998, April). Earnings of husbands and wives in dual-earner families. Monthly Labor Review Online, 121(4). Retrieved from http://www.bls.gov/opub/mlr/1998/04/art4exc.htm Commentary: a brief history of U.S Great depression 1929 vs. current crisis. (2008, November 27) Retrieved from http://www.merinews.com/article/great-depression-1929-vs-current-crisis/150846.shtml Schoen, W Goldman, D. (2010, August 25). Great depression vs. great recession. Retrieved from http://money.cnn.com/news/storysupplement/economy/recession_depression/ World war I, 1920s prosperity, the great depression