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By the end of this section, you will be able to:

  • Identify patterns of inflation for the United States using data from the Consumer Price Index
  • Identify patterns of inflation on an international level

In the last three decades, inflation has been relatively low in the U.S. economy, with the Consumer Price Index typically rising 2% to 4% per year. Looking back over the twentieth century, there have been several periods where inflation caused the price level to rise at double-digit rates, but nothing has come close to hyperinflation.

Historical inflation in the u.s. economy

[link] (a) shows the level of prices in the Consumer Price Index stretching back to 1916. In this case, the base years (when the CPI is defined as 100) are set for the average level of prices that existed from 1982 to 1984. [link] (b) shows the annual percentage changes in the CPI over time, which is the inflation rate.

U.s. price level and inflation rates since 1913

Graph a shows the trends in the U.S. price level from the year 1916 to 2014. In 1916, the graph starts out close to $10, rises to around $20 in 1920, stays around $16 or $17 until 1931, when it jumps to around $15. It gradually increases, with periodic dips, until 2014, when it is around $236.   Graph b shows the trends in U.S. inflation rates from the year 1916 to 2014. In 1916, the graph starts out at 7.7%, jumps to close to 18% in 1917, drops drastically to close to –11% in 1921, goes up and down periodically, until settling to around 1.5% in 2014.
Graph a shows the trends in the U.S. price level from the year 1916 to 2014. In 1916, the graph starts out close to $10, rises to around $20 in 1920, stays around $16 or $17 until 1931, when it jumps to around $15. It gradually increases, with periodic dips, until 2014, when it is around $236. Graph b shows the trends in U.S. inflation rates from the year 1916 to 2014. In 1916, the graph starts out at 7.7%, jumps to close to 18% in 1917, drops drastically to close to –11% in 1921, goes up and down periodically, until settling to around 1.5% in 2014.

The first two waves of inflation are easy to characterize in historical terms: they are right after World War I and World War II. However, there are also two periods of severe negative inflation—called deflation    —in the early decades of the twentieth century: one following the deep recession of 1920–21 and the other during the Great Depression of the 1930s. (Since inflation is a time when the buying power of money in terms of goods and services is reduced, deflation will be a time when the buying power of money in terms of goods and services increases.) For the period from 1900 to about 1960, the major inflations and deflations nearly balanced each other out, so the average annual rate of inflation over these years was only about 1% per year. A third wave of more severe inflation arrived in the 1970s and departed in the early 1980s.

Visit this website to use an inflation calculator and discover how prices have changed in the last 100 years.

Times of recession or depression often seem to be times when the inflation rate is lower, as in the recession of 1920–1921, the Great Depression, the recession of 1980–1982, and the Great Recession in 2008–2009. There were a few months in 2009 that were deflationary, but not at an annual rate. Recessions are typically accompanied by higher levels of unemployment, and the total demand for goods falls, pulling the price level down. Conversely, the rate of inflation often, but not always, seems to start moving up when the economy is growing very strongly, like right after wartime or during the 1960s. The frameworks for macroeconomic analysis, developed in other chapters, will explain why recession often accompanies higher unemployment and lower inflation, while rapid economic growth often brings lower unemployment but higher inflation.

Questions & Answers

endogenous and exogenous
Afzaal Reply
What is the role of price system in The market economy
Cyrielle Reply
(1).Income is the main determined of macro economics. (a). true (b). false
Manisha Reply
yes
Anjali
tell me correct ans with examples!!
Manisha
yes
The
what yes yes?
Manisha
mam actually I want to say that income is not the main determinant of macro economics.
The
based on your knowledge about the production possibility frontier,demonstrate an assumption of supposed schedule of ppe for the production of rice and face masks by Bangladesh.use graphical representation as well
Ashraf Reply
hay
Ashraf
hlo
Karan
can you answer this
Ashraf
whats tradeoff
JUSTIN Reply
tradeoff is a balance achieved between two desirable but conflicting things
Faith
can I read in Hindi?
Rashmi Reply
don't know..
Azka
why not
Omid
Omid Amini....how?
Rashmi
sure thing
Faith
mention two necessities of estimation of national income in india ?
Krishna Reply
what means the supply
Abdourahamane Reply
hello
mosisa
hii
SHWETA
hi
Aleem
its means amount of product available right now.
Aleem
is everything important here🙂
Alizy
I mean anything*
Alizy
u can read it
Aleem
it's mean something needed or wanted
Alizy
where are from shweta
Aleem
where are you from shweta
Aleem
Hello
Anas
it may mean the stock available
DR
to make something needed or wanted available to someone
Faith
is someone who manufactures something
Faith
What is the cost-benefit analysis?
Hannah Reply
A cost benefit analysis is a process by which organizations can analyze decisions, systems or projects, or determine a value for intangibles. The model is built by identifying the benefits of an action as well as the associated costs and subtracting the costs from benefits.
sanga
thanks!
Hannah
Cost benefit analysis is a process used primarily by businesses that weighs the sum of the benefits, such as financial gain, of an action against the negatives, or costs, of that action.
ALIM
process of cost benefit analysis and decision making crieteria
Santosh
hello everyone
BtsARMY
hello every one,
Dereje
hello everyone
waqar
what is the opportunity cost?
SHWETA
The next best option forgone is call the Opportunity cost of selection one.
Oshadi
who is producer?
rishabh Reply
karan johar
Mohd
shut up mr.mohd
rishabh
it's serious question..
rishabh
shut up mr.mohd
rishabh
simple who produce good
Alizy
who is aconsumer?
Ritik Reply
who uses the commodity
Kanza
a consumer is one that buys good for consumption .
rishabh
Kanza consumers uses the commodity..
rishabh
why do we put tariff on import goods
Salam Reply
Maybe to give national enterprises better opportunities than foreign ones... or just to get more money to the national budget in any way possible. I suppose it allows also to control import and therefore its influence on national economy and other countries economy too.
Pawe
i think to control import or for development of his own industry
RAJPOOTCHANAL
what were the events during the great depression that made classical economy tenets ineffective
Alby Reply
please what is the answer for the following question; derive the expression for a two sector Keynesian model from sowotuom land economy and state all the two components in the expression.
Alby Reply
No idea
ahmad
meaning nature and scope of macroeconomics
Diksha Reply
meaning of macroeconomics
Diksha
meaning of macroeconomics
Diksha
meaning of macroeconomics
Diksha
Macroeconomics covers aggregate or in simple words overall economy of country or world while microeconomics was just concerned with individual economies
Hamza
Hope this helped you, you can search it more on Google there is a YouTube page by the name of jacob Clifford
Hamza

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Source:  OpenStax, Macroeconomics. OpenStax CNX. Jun 16, 2014 Download for free at http://legacy.cnx.org/content/col11626/1.10
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