After the introduction to economic indicators in section : macroeconomic forecasting through economic indicators, this section will look at the possibilities of predicting the recession starting in December 2007 using these indicators. Again it is important to remember that as this paper is written ex. post with revised data and a broad understanding of what went wrong1, it could easily be pointed at numerous of relatively detailed and complicated indications that something was fundamentally wrong with the US economy ahead of the recession.
Since the end of World War II, the United States has experienced almost continuous inflation— the general rise in the price of goods and services. It would be difficult to find a similar period in American history before that war. Indeed, prior to World War II, the United States often experienced long periods of deflation. It is worth noting that the Consumer Price Index (CPI) in 1941 was virtually at the same level as in 1807.
Prices and price level
Prices are of great importance in macroeconomics as indeed they are in microeconomics. However, in microeconomics we are more interested in prices of individual goods and services and such prices are rarely important for the economy as a whole although there are exceptions (for example, the price of oil).
It may be one of the most familiar words in economics. Inflation has plunged countries into long periods of instability. Central bankers often aspire to be known as “inflation hawks.” Politicians have won elections with promises to combat inflation, only to lose power after failing to do so.
Galloping and creeping inflation
In the summer of 1923, the German inflation was rapidly heading toward the grand finale: total repudiation of the currency. As an instructor in a Berlin college, this writer drew a monthly salary that had been raised from an inflated 10,000 marks or so in early 1922 to 10,000,000 marks by July, 1923, and the whole amount was being paid twice a month; then, once every week; then once each day.
Money originates in one of two ways. One way is by depositing gold, the value of which is credited to the depositor on a bank account. However, the bulk of the nation's "purchasing power" stems from credit extended by banks,! be it by loaning funds or by purchasing securities (bonds).