Welker’s daily links 05/14/2009

May 15 2009

Published by Jason Welker at 12:28 am under

ThinkEconomics: Introduction

Through interactive graphs, ThinkEconomics illustrates basic economic principles that are taught in a college-level introductory economics course. These graphs enable students to develop analytic and deductive reasoning skills by manipulating graphical elements of the economic models. Students also learn how to apply these models to analyze and understand economic phenomena.

Economic models represent causal economic interrelationships that occur in a particular sequence or order. Textbooks offer written explanations accompanied by static illustrations, but they cannot capture or animate the step-by-step dynamics of an economic model. In a classroom, a professor typically draws a graph on the chalkboard, explains its construction, and then uses the graph to analyze the effects of various changes in the model’s parameters or variables. This classroom explanation and graphical manipulations happen only once and the total analysis can be very difficult to replicate in student lecture notes.

With the interactive possibilities of Macromedia Flash and the anytime, anyplace nature of the Web, students can now experience the models as they were meant to be, and in the process, learn to “think economics.” Because of the vector capabilities of Flash, the models do not require a broadband connection for fast downloading and students can easily repeat each model as many times as necessary to understand the economic principle. Animation and interactivity combine to create a greatly improved learning environment.

tags: economics
A good read for AP Macro teachers: Liquidity preference and loanable funds – Paul Krugman Blog – NYTimes.com

I thought it might be useful to re-explain why our current predicament can be thought of as a global excess of desired savings — which means that fiscal deficits won’t drive up interest rates unless they also expand the economy.

Here’s what I imagine Niall Ferguson was thinking: he was thinking of the interest rate as determined by the supply and demand for savings. This is the “loanable funds” model of the interest rate, which is in every textbook, mine included. It looks like this:
INSERT DESCRIPTION

where S is savings, I investment spending, and r the interest rate.

What Keynes pointed out was that this picture is incomplete if you allow for the possibility that the economy is not at full employment. Why? Because saving and investment depend on the level of GDP. Suppose GDP rises; some of this increase in income will be saved, pushing the savings schedule to the right. There may also be a rise in investment demand, but ordinarily we’d expect the savings rise to be larger, so that the interest rate falls:
INSERT DESCRIPTION

So supply and demand for funds doesn’t tell you what the interest rate is — not by itself. It tells you what the interest rate would be conditional on the level of GDP; or to put it another way, it defines a relationship between the interest rate and GDP

tags: economics

Posted from Diigo. The rest of my favorite links are here.

About the author: Jason Welker is a teacher at Zurich International School in Switzerland, where he teaches Advanced Placement and International Baccalaureate Economics. In addition to maintaining numerous online resources for economics student and educators, Jason developed the online version of the IB Economics course for Virtual High School and is currently authoring a textbook for IB Economics students for Pearson Baccalaureate which will be available in Spring of 2011. His economics student wiki won the 2007 "Best Educational Wiki" award from the "EduBlog Awards".