RS 12: Interview Project Reaction

RS 12: Interview Project Reaction

            When we were first assigned this project, I really questioned what the purpose was.  I thought that it was going to be a waste of my time and was “busy work”, but I can admit that I was wrong for jumping to conclusions.  This assignment taught me that the economy can change so quickly.  Within time span of just over 50 years the economy changed tremendously and it was really interesting to be able to see how it changed.

            The one thing that really caught my attention was that gas cost at most $0.25 cents when my grandmother started driving and was just under a dollar when my mom first started driving.  To me that sounds crazy because once I started driving it was around $3.50. There is a 55-year difference between me and my grandmother and the price of gas multiplied by 14.  I always used to wonder how that was possible because 55 years ago cars were not as popular as they are today.  Gasoline is an elastic good, which means that people will buy it no matter how the price changes.  Because the demand for gasoline is so high and the there is a strict supply of gasoline, gas companies can get away with charging a high price of $3.50 for gas.  Today if they charged $0.25 for gas people would be filling their cars up everyday and stocking up on it, which in the end would result in a gas shortage.  So from this analysis I can expect to see gas prices slowly increase because of the current demand and strict supply of gas. 

In 1964 gas was $0.20.

Gas prices in 1978 were around $0.55 to $1.00.

Today gas prices vary based on state, and can range anywhere from $3 to close to $5.

           Another thing that really shocked me was the first wages my grandmother and mom earned compared to my first wage.  When I was twelve I worked part time at a day care and received $6.25 off the books.  For my mother’s first job she earned approximately $20,000 for the year at the age 20.  My grandmother earned even less at $20 for the week.  When my grandmother told me that she earned $20 for a week, my jaw literally dropped.  To me that is impossible to live off of.  When I go food shopping with my mom she spends approximately $150 for a family of four; $20 a week would not even be enough for us to get a weeks worth of groceries.  This just goes to show how much the cost of living has changed since my grandmother started working and since I earned my first salary. 

            One thing I did notice that I had in common with my mom and grandma was that we had the same idea when it came to saving.  We all said that we either switched to a cheaper brand or store brand, or just decided to live without the product.  I think that this is a common agreement between most people, but I also think it has to do with the way I was raised.  I know I was taught to not focus on labels and to only purchase what I really need, so that can be a cause of the similarity of answers.  I think that by switching to cheaper brands we can save money and spend it on other necessities, which would boost the overall economy.

            This interview assignment taught me a lot.  First off it showed me that the economy really changes over time.  Nothing stays the same, and prices really do change.  Also it showed me that people are forced to make sacrifices when times of economic struggle occur.  My grandma and mom lived through the gasoline crisis of the 1970s, and we all experienced the recession of 2008.  Through these economic events we have had to make sacrifices, which I think gave us all a better understanding of how the economy can change so drastically and quickly.  I think that economics classes should be mandatory in high school so people can learn at a younger age what the economy is all about.  Overall, I think that this project really gave me an inside look at how quickly things can change in the economy.

RS 11: Interview Answers Summary

RS 11: Interview Answers Summary

First Person: Myself

Second Person: Rose Ann Sweeney (My Mother)

Last Person: Virginia Troy (My Grandmother)

RS 10: Cyprus

RS 10: Cyprus

Cyprus bailout deposit grab unprofessional & dangerous

            Cyprus is a little, European country that lies off the coast of Turkey and Lebanon.  Despite its size and low popularity, Cyprus has been in the news a lot lately for all the wrong reasons.  Similarly to Iceland, Cyprus is dealing with its own crisis.  The country is seeking a bailout in order to stabilize the economy before it effects any other countries. 

            The whole problem started as a result of deposit insurance.  Deposit insurance is a form or protecting bank depositors when the bank borrows money and cannot pay it back.  Everyone knows that when you deposit money in a bank, the bank pays you interest so they can lend your money.  Many countries in Europe invested their money in the banks of Cyprus.  When Greece was beginning to go through their own downfall, Cyprus decided that they were going to lend them money to help them out.  Greece was unable to pay the banks of Cyprus back and that is what caused this whole mess. Cyprus promises its depositors deposit insurance on accounts up to 100,000 euros; however, this promise was broken.

            As part of the bailout plan, Cyprus announced that they were going to take 6.7% from all savings accounts and 9.9% from savings accounts that contain over 100,000 euros.  This includes taking money from those who are covered by the deposit insurance. While this idea has not yet been passed by Parliament, this idea has people in outrage.  This would mean that people who invested money in this bank would not get it all back because the bank took it. 

            The biggest problem is that many European countries have invested their money in the banks of Cyprus.  In fact, Russia invested most of their money in the banks of Cyrus after the Soviet Union split up.  If countries pull their money out of the banks then the whole economy of Europe will fall.  The biggest fear comes if Spain and Italy pull their money out of Cyprus.  Because these countries are so big and influential, them pulling their money out could mean the collapse of the entire euro. 

            We have all heard stories of some European country that has fallen into an economic crisis.  Unfortunately for the small country of Cyprus, they are the latest country to be economically suffering.  If the banks of Cyprus did not lend their money to countries that could not pay them back, then Cyprus would not be in the situation that they are in right now.  Hopefully they find a way to bailout these banks so the euro does not go under as well.  

Could tiny Cyprus take down the world?

RS 9: Don’t Believe the Hype

RS 9: Don’t Believe the Hype

Dow Jones At All Time High????

            In the past week the Dow Jones industrial average has reached record highs, according to most medial outlets.  However according to several critics of the Dow this statement is false.  Those who do not believe that Dow has reached its high argue that it is because nobody accounts for inflation in the Dow Jones industrial average.  Also, the mathematics used to evaluate this number is not as accurate as it could be. 

            Charles Dow, Edward Jones, and Charles Bergstresser founded Dow Jones and Company in 1882.  While it started as a little company, it has become one of the most well known business information leaders on Wall Street.  Because it has been around for such a long time, employees do not want to change the methods and strategies of the company, even though they may not be as accurate as they used to be.  When the Dow first started, there was no computer that could calculate the status of the economy.  They found the Dow Jones industrial average by adding the prices of 30 component stocks and then divided that total by the Dow Divisor.  The Dow Divisor is a number that changes regularly and counterbalances the effect of stock splits, bonus issues, dividend payouts, or any change in the component stocks.  This was simple math and could be done without a complex calculator.  Today there is technology that can find an even more accurate number than the Dow Jones.

            Another reason why the Dow Jones is not as accurate as other indices is because it focuses on share price.  The share price is the price of a single share of a number of stocks that a company sells.  For example, Company A has 100 shares with a share price of $1.  Company B has 2 shares with a share price of $50.  Both companies have a market cap of $100.  However with a 10% increase Company A will add $0.10 to each dollar share, Company B will add $5 to each share.  Even though both companies are still worth the same ($110) after the increase, the Dow would care more about the $5 added to Company B than the $0.10 added to Company A. 

            The only advantage that the Dow Jones has over its competitors is its age.  Because the Dow Jones is so old and has been around for over 100 years, everyone has heard about it.  The media, such as news television, is what gives the Dow its popularity.  Because of this popularity, employees of the Dow Jones feel that it would not be worth it to change anything about it.  Even John Prespo, an employee at the Dow Jones, says that it is not as accurate as it could be.  However, in times of recession, such as the most recent in 2007, the Dow is easier for people to understand what is going on.  By seeing a basic number and recognizing it as good or bad, people can determine how the overall economy is doing.  Essentially, the Dow Jones is a way for ignorant people to understand the US economy.   

            Although the Dow Jones gives us a basic understanding of how the economy is doing, it is not as exact as it could be.  The Dow Jones does not incorporate all of America’s corporations and it only focuses on the share price of stocks.  The Dow leaves out essential information, such as GDP, in its calculations leaving us with less accurate information.  So while the media says the Dow has reached its all time high for seven straight days, they are mistaken.  The Dow has not reached its high since 2000, and in fact we are 11% short of what it was in 2000.