CHAPTER TWO

Making Sense of the Economy

As I set about the initial detective work in my attempt to clarify the economic cycle and its key cause-and-effect relationships, I knew that common sense had to be my guide. I also knew that a good deal of my focus would be on consumer spending, better known in economists’ parlance as personal consumption expenditures (PCE). There were two reasons for this focus:

•The first was specific to my job responsibility. As an analyst of retailing companies, I needed particularly to understand the ebb and flow of consumer spending as a whole, including the considerable portion (spending such as that on education, medical care, and housing) that does not occur in retail stores but competes with stores for consumers’ ...

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