A major theme of both the AP and IB Economics courses is the long-running debate between the Keynesian, demand-side theories of macroeconomic policy and those of the Classical, supply-side school. Today’s “Great Recession” has revived this debate, which itself dates back to the Great Depression of the 1930′s, when an Englishman and an Austrian could be found at the ideological centers of two different philosophies of the role government should play in the macroeconomy.
John Maynard Keynes and Friedrich Hayek were close friends whose views on government’s role differed greatly. Hayek was a classical, laissez faire libertarian who believed that any intervention by government in a nation’s economy disrupted the efficient functioning of the free market and threatened to stifle private enterprise. Keynes, the father, of course, of modern Keynesian economics, believed that free markets left unchecked were vulnerable to the volotile animal spirits of investors and speculators whose often irrational behaviors could create externalities such as unemployment and credit crunches, thereby harming society as a whole.
Paul Solman of PBS (who I recently met at an Economics teachers conference in Washington DC) interviews a modern Keynesian, Robert Skidelsky (Keynes’ biographer) and a neo-classical economist, Russ Roberts (who I also recently met in Richmond, VA).
Essential Question: How does economic development differ from economic growth?
Objective: Whereas most assignments deal in information and analysis, this one deals in imagination. Here we ask you to portray what you believe more economically developed countries look like. And considering that development is a relative term, we also want to see how a country could end up if it only achieves economic growth, without any progress on development.
Goal: To visualize and depict the distinction between economic development and economic growth.
Process:
Class is divided into pairs, each pair is either an “A” or a “B” pair. A groups will focus on Economic Growth and group B groups on Economic Development
Read chapter 30 of the Course Companion with special attention to your assigned section.
A groups will focus on pages 321-325 on “Economic Growth” and “Consequences of Economic Growth”
B groups will focus on pages 325-328 “Sources of Economic Development”
Using PhotoStory, create a slideshow depicting the situation you were assigned (either “growth” or “development”). For an example of a PhotoStory, quickly watch this one on the Dust Bowl. Here is a tutorial from Microsoft on how to quickly start making your slideshow in PhotoStory.
Save images to a folder on your computer, then import them into a PhotoStory when you are ready to start creating your slideshow.
Add subtitles and/0r your own narration to your PhotoStory. If you wish, you can add music to your PhotoStory as well.
Be sure to include at least ten images in your slideshow.
As you and your partner gather images online, keep in mind the definitions of growth and development. Images should portray these definitions in a creative way.
When your PhotoStory is complete, save the file “for playback on your computer”, then submit the finished file into your class’s folder on Classworks. Each pair will have the chance to show their slideshow to the class. The two best slideshows from the class (one on growth and one on development) will be posted to this blog for the world to see!
This lesson was originally created by Sean Maley, IB Economics teacher at the International School of Bucharest, Romania.
Introduction: In order to understand the goals of economic development, it is useful to examine the characteristics of more economically developed countries and compare them to those of less economically developed countries.
Part 1 – Data collection: Using the two websites above, locate the following for TWO COUNTRIES, one from the list of countries with “high human development” and one from the list of countries with “low human development”. Use the tables below to fill in the data for the two countries you have chosen.
Social Indicators:
HDI ranking and value
Age structure
Population growth rate
School life expectancy
Life expectancy at birth
Total fertility rate
Education expenditures
Economic Indicators:
GDP per capita
GDP – composition by sector
Unemployment rate
Public debt
Stock of direct foreign investment – at home:
Labor force – by occupation
Social Indicators:
Indicator
Country with high HDI
Country with low HDI
HDI ranking and value
Age structure (dependency ratio)
Population growth rate:
School life expectancy
Life expectancy at birth:
Total fertility rate:
Education expenditures:
Economic Indicators:
Indicator
Country with high HDI
Country with low HDI
GDP per capita
GDP – composition by sector
Unemployment rate
Public debt
Stock of direct foreign investment – at home:
Household income or consumption by percentage share:
Labor force – by occupation:
Part 2 – Dependency Ratio:A nation’s dependency ratio tells us something about the ability of members of a nation’s workforce to provide necessities to him or herself and his or her dependents. Typically, less economically developed nations will have a higher dependency ratio than more economically developed countries. The lower a nation’s dependency ratio, the greater capacity for its workers to accumulate savings, which leads to investment, accumulation of capital, greater productivity, higher incomes and more economic development.
Calculation the dependency ratio: To calculate a nation’s dependency ratio, you must find demographic information on its population. You may need to do additional research beyond the two websites above to find this data.
Calculate the dependency ratios for:
Your country with high HD:
Your country with low HD:
Part 3 – Lorenz Curve and Gini coefficient:
The Lorenz curve is a graphical representation of the income distribution of a country. It plots the percentage of a nation’s total income (GDP) against its total population. The “line of absolute equality” is the 45 degree line, indicating a nation where each quintile (20% of the population) earns exactly the same income as each other quintile. No country is absolutely equal, therefore the line of equality is only used for comparison.
The Gini coefficient is the ratio of the area below the line of equality and above a country’s Lorenz curve and the total area of the triangle below the line of equality. A country with perfect income equality would have a Gini coefficient of 0. A country in which the top 1% had controlled all of a nation’s income would have a Gini coefficient of nearly 1.
Example: Australia’s income is distributed across its population in the following way:
1st 20% – 5.9%
2nd 20% – 12%
3rd 20% – 17.2%
4th 20% – 23.6%
5th 20% – 41.3%
Gini coefficient = 0.352
Illustrating your countries’ Lorenz Curves: This is another activity that may require research beyond the websites provided above. Try to find data on the share of national income earned by various levels of society. If you cannot find data for the 20% ranges, use the percentage ranges you can find. Draw a Lorenz curve for the two countries you researched.
Part 4 – Conclusions:
Evaluate your findings from the two countries you researched.
What conclusions can you draw about the correlation between GDP, HDI, income equality, social and economic indicators between developed and developing countries?
Does a high HDI correlate with relative income equality? What about low HDI?
Is a high GDP indicative of high levels of human development?
What other conclusions can you draw about economic development, national income, and equality?
To what extent did your country with low HD exhibit the following characteristics?
Low standards of living?
Low incomes?
Inequality?
Poor health?
Inadequate education?
Low levels of productivity?
High rates of population growth and dependency burdens?
High levels of unemployment?
Dependence on agricultural production and primary product exports?
Imperfect markets?
Dependency on foreign developed countries for trade, access to technology, foreign investment and aid?
More econ review videos from my new favorite YouTube channel, Jacob Clifford’s Econ Concepts in 60 Seconds.
To review for the upcoming test, you will join a small group and watch one of the four videos on the Perfect Competition. After watching and discussing one video with your group, you will be re-assigned to another group with students who watched a different video. You will then lead a short discussion on your original video with your new group.
With your first group – 15 minutes: As your group watches its assigned video, have your notes open in front of you and draw the graphs Mr. Clifford draws along with him. Pause the video where necessary to have time to draw graphs. Take notes while watching the video so you can teach it to another group. With your group, prepare a short discussion of the video’s main points, including:
What rule or lesson about Perfect Competition does the video focus on?
What did you already know that this video reminded you of or reinforced your understanding of?
What did this video introduce that was new to you?
How were graphs used to teach the concepts?
With your second group – 20 minutes: For thesecond part of this assignment, there should be four new groups, each including one member of the four original groups.
Each group member should lead a 2-3 minute discussion of the video he or she watched in the first group.
Go over each of the discussion points from above.
Answer any questions your new group members have about video you watched.
Group 1 - The Profit Maximization Rule – MR=MC:
Group 2 - Perfect Competition in the short-run:
Group 3 - Perfect Competition in the long-run:
Group 4 - The Shut-Down Rule in Perfect Competition:
My buddy living in Shanghai posted this video to his Facebook profile today. It demonstrates how misaligned incentives in China lead local government officials to launch massive government infrastructure projects, all with the goal of meeting the growth targets handed down from Beijing.
Building roads to nowhere and cities that stand empty certainly creates jobs and new spending by the workers employed in their construction, so in that regard at least one goal of such projects is achieved. But whether or not all growth is good growth depends on whether efficiency in the economy is increase or decreased as a result of the growth strategies used.
Hundreds of billions of dollars worth of resources in China are currently being allocated by the government in Beijing towards massive public works projects such as this sparkling new city in remote Inner Mongolia. But it seems that government plans don’t always fall in line with the wishes of the nation’s people. A wise man once said, “build it… and they will come.” Apparently in China, that’s not always true.
I happen to have traveled in Inner Mongolia a few years ago with a group of students from my school in Shanghai. It was a sad thing in my opinion to witness the rampant development of the once pristine and culturally rich Inner Mongolian steppes. Ethnic Mongolians had been put on large reservations (not unlike the Native American people 150 years ago) and turned into tourist attractions. The cities were populated almost entirely with ethnic Han Chinese, there for the purpose of building more new cities, mining raw materials, and selling them to the rest of China’s industries.
Fiscal policy (the use of government spending and taxes to stimulate or reduce the overall level of demand in an economy) is a powerful tool for achieving the macroeconomic goals of full-employment, economic growth and price level stability. When used effectively, government spending can also improve efficiency in an economy by allocating society’s scarce resources towards socially and economically valuable projects. In China, it appears, the government’s incentives are aimed more towards pleasing the higher ups and continuing to inflate the speculative bubble in real estate that has almost certainly formed, rather than pursuing socially desirable and allocatively efficient projects that actually help the Chinese people. Damn shame!
Discussion Questions:
What type of fiscal policy is the government in China pursuing? Expansionary or contractionary? What is the difference?
Why is government spending sometimes less efficient than private sector spending?
What would have been an alternative policy to allocating over $220 billion of public money into infrastructure projects that may have resulted in a more efficient allocation of China’s resources than projects such as the “empty city” in the video above?
