PRINCIPLES of ECONOMICS
California History–Social Science Framework | Chapter 18
- How is economics about scarcity, investment, growth, employment, competition, protection, entrepreneurship, and markets?
- What is capitalism? What are its bene ts and problems?
- What does it mean to be nancially literate?
- How do worldwide markets a ect me?
The study of 12th-grade economics provides students with a unique opportunity to consider the impact of choice on individuals, groups, and institutions. It o ers a lens to understand and analyze human behavior, and it builds a student’s ability to make informed decisions based on relevant economic information such as an analysis of costs and bene ts; the trade-o s between consumption, investment, and savings; the availability and allocation of natural
resources; the distribution of resources among investors, managers, workers, and innovation; the role of the government in supporting, taxing, and investing in industries; and human and physical capital.
Economics functions as a lens through which to consider the impact of governmental action (or inaction) on the lives of citizens. Understanding how the economy functions and how economic reasoning can inform decision making will provide students with the tools to become nancially literate and independent. Economics is the study of how people choose to use resources. It is also a discipline that analyzes how to promote productive economic activities such as entrepreneurship, education and government investment in infrastructure, and research; it studies how to promote full employment, fair wage growth, and return on capital; it explores how to avoid nancial dislocations and predatory business practices; and it argues how best to provide basic safety-net supports such as retirement for each citizen.
e resources people use are land, labor, and capital; these resources are nite, or what some people call scarce. Scarcity means that resources, such as natural and human resources, are limited in quantity compared with the competing demands for their use. In this one-semester economics course, students examine more deeply the choices they make and explore how these choices have consequences that ripple across the world.
One question that can guide the course is How is economics about scarcity, investment, growth, employment, competition, protection, entrepreneurship, and markets? By learning about economics through questions, students will deepen their understanding of fundamental economic concepts like cost–bene t analysis; they will analyze the American economy in a global setting; they will explore how the federal government a ects the American economy; they will learn about the labor market in national and global settings and see themselves in those settings by identifying which jobs will grow in the near future and the education requirements for certain jobs; they will analyze aggregate economic behavior of the U.S. to learn about how unemployment and interest rates, for example, a ect the country; and they will explore issues related to international trade.
To achieve all of this, students learn to apply basic economic principles and methods of analysis, building on the knowledge of economics gained in earlier grade levels. In kindergarten, students learn that they make choices. By twel h grade, they apply economic concepts to the decisions they make in their own lives and to the economic, social, and political issues that dominate the world around them.
Although students rst encounter economics as a separate course in the twel h grade, much of the course content will not be new to them. Concepts like human capital, the availability of work, cost–bene t analysis, the role of markets, infrastructure such as roads and public health, the role of law and patents in encouraging innovation, the importance of private and governmental investments in research and technology, and international trade can be explained in their study of history in earlier grades. For example, in the elementary grades, students can think about how scarcity of resources, such as what Americans faced in the early colonial period, a ected the choices they made.
At the middle school level, students can consider the impact of trade on the growth of civilizations during the medieval period. In the eleventh grade, students can examine the contributions of capitalism, industrial development, scienti c innovations, and entrepreneurship to continued growth in the standard of living. ey can also examine the excesses of late nineteenth-century capitalism, such as trusts and predatory practices; scrutinize the increasing economic role of the federal government during the Great Depression; and debate the e ectiveness of New Deal programs, including regulation, social supports, and labor rights, on the American economy. us, students have been revisiting, in a variety of historical contexts, questions about scarcity of resources.
Now in twel h grade, they will examine primarily the current contexts to consider important economic questions including How does the economy relate to me? What does it mean to budget? How do markets work in the abstract and concrete world?
Fundamental Economic Concepts and Reasoning
How are resources allocated?
What is a market economy?
Students may begin learning about economics from a personal perspective; in other words, to get invested in the discipline they can begin their study of economics by seeing their place in it, starting with personal budgeting and moving outward to identify their economic place in the world through a multitude of layers.
Teachers may begin by telling students they will be assigned a unique (and imagined by the teacher) economic identity: is identity initially consists of a monthly salary, a list of bills, and a checkbook or an online system of sending and receiving money. Starting with their monthly salary, students are directed to determine their take-home pay by subtracting federal and state taxes (teachers can provide this information to students or have students locate it and estimate their rate based on their salary).
Next, students must pay their bills. Bills consist of a predetermined amount for these categories: rent/mortgage, utilities, cell phone, student loan payment, car payment, and car insurance. Once bills are paid, students allocate money for the remainder of the month. ey can choose whether or how much to save; how much to devote to food, gas, and other staples; and how to use any discretionary money le over. Once students have divided their resources for a month, they should take a step back and look at their larger budgets, perhaps using online budgeting tools and making charts or graphs to understand how and where they spend money.
With a budget in hand, students can begin to learn about di erent kinds of debt and ways of accumulating personal wealth. Starting with debt, teachers provide students with an overview of what a credit card is, how interest gets calculated, what compound interest consists of, and how credit card debt a ects individuals in the marketplace. Students can calculate credit card payments and factor them into their contrived economic identities for practice. In addition, teachers may provide similar overviews of student loan debt and mortgage debt and explain how these latter forms of debt are o en considered “helpful” debt in the long term as they contribute to more opportunities for wealth during a lifetime. Still, these forms of debt can be calculated and similarly factored into their contrived economic identities.
Students should also learn about di erent options for saving money. While teachers will go into more depth later in the semester about marketplace investments (in which students can learn to “play” the stock market, for example), students can learn now from their
above-described budgets about different options for saving their
resources. Teachers may o er students
three options for investment: for
example, a zero-risk very small interest
savings account or CD, a small-risk
mutual fund, or a higher-risk
investment. With data supplied by the
teacher, students can calculate their
wealth from their hypothetical identity
over time and extrapolate where they will be in one year, ve years, een years, and so on. In the meantime, they work through compound interest and acknowledge that interest rates vary signi cantly depending on many factors in the economy. At the end of this initial unit, students should come away with a personal understanding of their stake in the economy and can begin to place larger concepts in the context of their own place in it.
By learning about personal nance from this individual perspective, students will now learn about how international markets are interrelated and how they a ect their own nances and economic opportunities. At the more local level, immediate relevance can be achieved by discussing city and/or county budgets (i.e., revenues and expenditures), payday loans, rent-a-centers, and even chambers of commerce. Studying these topics now will help students when they become adults and must confront decisions about household budgets, student loans, credit cards, mortgages, and savings and investment strategies.
Just as students began this course learning about personal nance, the concepts can be woven throughout the course, applying the economic ideas and analytical tools mentioned above to other sectors of the economy. Budgeting can be taught as an example of scarcity; job applications can be taught as examples of human capital inventories; student loans can be taught as an investment in developing human capital; use of credit cards can be taught to explain the opportunity cost of interest and repayment; and interest on credit can be taught as an example of price determination through supply and demand.
Economics is a social science that focuses on the choices people make about the utilization of resources and the production, distribution, and consumption of goods and services. Students can investigate the question How are resources allocated? to better understand the process of distributing resources. Students learn that each economic issue involves individual choices based on both monetary and nonmonetary incentives.
At a store in the mall, the manager decides what goods to stock, manufacturers choose which goods to produce, and the consumer decides what to buy. But on a broader level, one that is o en invisible to the consumer, decisions over what products are developed and o ered for sale are typically shaped by executives of public corporations, who must simultaneously consider the needs of stockholders, corporate boards, workers, and customers. Executives also make decisions about trade-o s among human and technological investment, investment and research for future growth versus compensation of employees, managers, and shareholders.
To better understand the choices that the store manager, manufacturer, and executives make in response to limited resources, students can consider the daily trade-o s they make in their own lives. For example, students may ask themselves, “How many hours will I use my human capital to study, and how many hours will I use it to work for pay?” A fundamental concept in economics is that the cost of something is what one gives up to get it. All decisions involve opportunity costs: that is, the cost of the best alternative that one gives up when making a choice. If the student chooses to study longer, he or she must give up hours that could be spent working for pay.
However, the student must also consider the potential bene ts of earning better grades, attending college, and receiving a higher salary in the future that may result from studying now. Students will examine the opportunity costs of choices, such as the following ones: Will I join the drama club? How much education or post-high school training will I acquire? What will I buy with my money? How much will I save? Will I use a credit card for purchases? What is the interest rate? By learning how to conduct cost–bene t analyses and how to evaluate the marginal bene ts and marginal costs of alternative uses of resources, students will learn how to make informed decisions.
Next, students can consider the questions What is capitalism? and more speci cally, What is a market economy? Students consider the potential for dynamic growth in a capitalist system, through the reinvestment of pro t for future earnings, increased e ectiveness and e ciency through economies of scale, and the reduction of risk through the creation of joint stock companies.
ey learn about market economies and concepts, such as private property, that form a fundamental basis for the American economy. ey study the signi cance of limited liability corporations, the rule of law and contracts, protection of innovations through patents, the role of government in providing necessary infrastructure like transportation, ports, public health, communication networks, and investment in medical and technological research. ey learn that market economies provide incentives that o en spur innovation and growth. Although there is no doubt that pro t is the main motivator for businesses, some business owners hope to produce goods and services that yield socially desirable outcomes.
Nevertheless, no market-based business can survive if it does not return a pro t. Regarded as the father of modern economics, Adam Smith argued that individuals pursuing their own self-interest can also improve society as a whole. Smith also advocated basic government supports and the importance of following a moral code. A free market o en promotes innovation, reinforces individual liberty by protecting private property, encourages review and debate, and rewards initiative. However, markets may also create consequences such as pollution, monopolies, predatory practices, or inequitable income distribution. A question that students may consider is what are the components of a free economy in the abstract versus free economies in the real world? Students may also consider the special case of utilities by investigating the question What is the best way to deliver services provided by utilities: through a public or private (but regulated) monopoly?
Students can begin to identify similarities and di erences between economies functioning in the abstract versus reality, as this is key in setting up later economic principles. Students can also address the question How has the relative market power and political power of business and labor changed, and what has been the e ect of the change on income distribution over the past 100 years? Students should be able to use data to support their positions and present a careful evaluation of the source of the data.
The AMERICAN MARKET ECONOMY
What are key components of the American economic system? How are prices determined? Who determines prices? How do banks and markets function?
Students will rst learn about the operation of markets by studying the American market economy. Students can begin to learn about the functioning of the economy by addressing the question What are the key components of the American economic system? A market is an interaction between buyers and sellers. Students will learn that a market economy is a decentralized economic system where most economic decisions are made by individuals.
One fundamental component of market economics is the premise that individuals respond to incentives. An incentive to a worker is pay, whereas incentive to a business is pro t both in the present and in the future. Pro ts in a market economy encourage entrepreneurs and businesses to invent, construct, and produce e ciently to meet the desires of consumers. Incentives to business may be multiple as they attempt to satisfy stockholders, consumers, or workers. Consumers also respond when incentives change: if gasoline prices stay high for a long time, drivers will switch to more fuel-e cient cars or alternative forms of transportation.
Another component of the American economic system is that relative prices in a market economy change over time with changes in supply and demand. e relationship between sellers and buyers may be illustrated by having students learn about the logic of supply and demand. Students can trace changes in supply and demand by using historical and contemporary examples and study the resulting change in equilibrium price and quantity. For example, an unusually large wheat crop, without an increased demand, will cause wheat prices to fall. Alternatively, a shortage of a popular video game system during the holiday season will cause the price to rise. Students can examine speci c cases of price changes and determine whether a change in demand, or in supply, or both, caused the uctuation in price. Students can also participate in a market economy simulation to learn about the interaction between sellers and buyers.
Students can continue to learn about key components of the American economic system by considering the following questions: How are prices determined?
Who determines prices? Markets allocate resources to produce goods that are
in demand, and they determine the quantities of goods produced and the prices
of those goods. Markets range from the local used-car market to the market for professional baseball players. e interaction between buyers and sellers in markets establishes the current price of a good, or what economists call the equilibrium price. If a price is too high, a surplus will occur and sellers must lower prices. If sellers charge too low of a price, the resulting shortage informs sellers that they can set a higher price. Students can see that
the price of a Picasso painting and a
so drink alike are determined by both
supply and demand in the marketplace.
Open competition within markets
aims to maximize economic e ciency,
but it can also negatively a ect di erent
groups and individuals. For example,
students can study how global
competition by producers of goods
ranging from toys to automobiles created new challenges for domestic manufacturers and workers in the United States (the consequences for other nations and people will be addressed in later units).
Global competition e ectively lowers the equilibrium price for these items.
e manufacture of toy dolls may be used as an example: because foreign manufacturers and workers produce dolls for less money than do American manufacturers (in part because American workers command higher wages and the materials to produce dolls are more expensive domestically), foreign manufacturers can then charge less money for the doll in the marketplace than the American manufacturer can; consequently this global competition lessens the amount of money American consumers are willing to pay for a doll. Because of this chain reaction in the equilibrium price of dolls, domestic manufacturers and workers earn less money for the same doll they had been producing.
Students can continue studying the interaction between the consumer and the producer by exploring the question Who establishes prices in the marketplace? Some prices are set by pure market forces through open competition. Students may investigate examples of how competition in the marketplace has led to signi cant
price reductions for computers and smartphones, yet prices on some goods like drugs have stayed high due to monopolies and collusion.
Other prices in the marketplace are set by the government in the form of price oors or price ceilings. A price oor sets a price above the equilibrium level; an example of a price oor in the labor market is the federal minimum wage. A rent control law that holds rents below the equilibrium is an example of a price ceiling in the housing market. Government attempts at price setting to improve market outcomes may have bene ts and unintended consequences for market participants. Rent control laws, for example, can bene t existing renters, but these laws may also lead to a shortage of available apartment units. If builders and/or property owners cannot recoup their initial investment or make a pro t, they will not have enough of an incentive to construct and/or rent apartments in the future.
Another historical example of government attempts at price setting happen in times of war, which requires immediate and concentrated action. During World War II, a close and bene cial relationship developed between business and government.
Students will also learn about the role of nancial markets and banks in the functioning of the American economy by addressing the following question: How do banks and markets function? Students may begin their exploration of the banking system by relating it back to the initial unit on budgeting. ey can discuss personal risks and costs, including banking and other fees, personal debt, and identity the . Students can also learn how banks can support the work of small-business owners through the formation of new businesses, how banks provide student loans for education, and how the variety of banks serve the speci c interests of their customers.
Beyond working on day-to-day transactions with individual customers, banks channel funds from savers to consumers and investors, expanding credit in the economy. Financial markets facilitate the raising and transfer of capital and the operation of international trading networks. When banks and nancial markets fail to perform these functions, or when they pursue risky and speculative loans like o ering stock market credit, or engage in questionable nancial instruments such as unregulated derivatives, there may be negative impacts on an economy, as was the case in the United States in the Great Depression, as well as during the nancial crisis that began in 2007.
Students should study a period of economic crisis to gain a better understanding of the American market economy. Such a study also serves as a link to the next unit, which focuses on the role of government in the American economy. Students should also use economic data (for example, gures on unemployment, housing foreclosures, income distribution, or losses in the stock market) to present a case for or against the statement that the American economy has a free nancial system. ey may investigate the results of the repeal of the Glass-Steagall Act (or Banking Act of 1933), which prohibited commercial banks from combining their normal banking functions (accepting deposits and making loans) with investment activities and speculation.
An additional way for students to address the question How do banks and markets function? is through practice. As with their initial imagined budget and personal nance exercise, students can extend that same set of circumstances to nancial markets. With a budget and clearly de ned nancial goals, students can make simulated investments in the stock market and analyze changes in value over time.
Government Influence upon the American Economy
How is the American government involved in the economy?
How has the American government been involved in the economy in the
past?
How does the federal budget a ect ordinary people? What does it mean to pay taxes?
What does it mean to run a de cit?
Why is there a Federal Reserve Bank? How does it function?
Students can further their studies of the American economic system by addressing this question: How is the American government involved in the economy? e U.S. economy is primarily a market economy with some government intervention. As a result, students learn that it is more accurately classi ed as a mixed economy. Students may review from previous classes the economic signi cance of government actions like investments in roads and other
infrastructure, health, basic medical and technological research, reining in monopolies and predatory practices, pure food and drug initiatives, and regulations against pollution and risky banking practices.
Government agencies, like the Federal Reserve and Consumer Financial Protection Bureau, sometimes intervene in markets to promote the general welfare, provide for national defense, address environmental concerns, establish and enforce property rights, and protect consumer and labor rights. In this unit, students investigate the changing role of government in the economy, including the consequences of both government action and inaction in speci c sectors
of the economy. In particular, they can analyze the outcomes of incentives and investigate the distributive e ects of government policy.
ey learn to identify the bene ts and costs of government in uence in the economy in di erent industries and for di erent groups of people. For example, students can consider the government’s response to hydraulic fracturing. Government regulation of “fracking” may impact the environment, the local labor market, and the growth of a variety of small- and large-business interests. Students can trace how government policy steers sectors of the economy through regulatory activity.
Students can consider the legacy of governmental involvement in a mixed economy by addressing the question How has the American government been involved in the economy in the past? ey may look at history to evaluate the impact of government in land purchases like the Louisiana Purchase and the purchase of Alaska; the investment in infrastructure, like canals, railroads, and the interstate highway system; investment in education through land grant colleges and the G.I. Bill; and investment in science and technology, such as space exploration.
Students can analyze and evaluate the extent and impact of government research into energy e ciency, space, medicine, and other investments, examining the distribution of bene ts and costs of these investments among di erent groups. Students may also look at contemporary examples of government involvement
in the economy like the 2010 Consumer Protection Act, which established the Consumer Financial Protection Bureau. Students may consider the ways in which the government aims to make markets work for ordinary Americans in the use of credit cards or mortgages,
for example. Federal, state, and local governments have enacted a wide range of laws intended to protect the health of the environment, many implemented through scal policies and used to in uence business decisions and practices that a ect public health
and the natural environment. Students learn about the externalities of modern production and consumption and the interactions between economic policy and protection of the environment. It allows them to explore marginal costs, marginal bene ts, and opportunity costs of government actions. is study builds their knowledge about the considerations and processes involved in decisions related
to the environment and natural resources (see appendix G for Environmental Principle V). Students investigate the range of scal tools government uses to help protect the environment: establishing or managing markets, providing subsidies, imposing taxes, and using command and control policies (Education and the Environment Initiative curriculum unit “Government and the Economy: An Environmental Perspective,” 12.3.1).
Students may also analyze the long history of water ownership in California, for example, to develop their understanding of the American system of
private property ownership. ey view issues through a lens of renewable and nonrenewable resources. Allowing them to explore the connections between individual property rights and societal decision making helps students recognize the wide spectrum of social, economic, political, and environmental factors related to the use and conservation of natural resources (see appendix G for Environmental Principle V). Students recognize that many of these factors are considered when governments and communities make decisions about private property rights and the balance between an individual’s self-interest and society as a whole (see EEI curriculum unit “Private Property and Resource Conservation Economics,” 12.1.4).
Government stabilization economic measures include both scal and monetary policies. To understand scal policy, students should address the following questions: How does the federal budget a ect ordinary people? What does it mean to pay taxes? e federal government’s expenditures and tax collection signi cantly a ect the economy. Students learn about the components of the federal budget and the ways in which Congress and the president enact spending and taxing policies.
students identify how governments budget resources, they study how governments generate revenue, they de ne what a budget de cit is, they learn about how it is nanced over time, and they explore the components of the national debt.
Students may examine federal budget spending priorities and trace how federal tax dollars are collected and spent. ey can participate in simulated federal budget exercises that investigate the ideas and priorities listed above. Students may also examine the historical trends in national debt by considering the questionWhat does it mean to run a de cit? ey can look to examples from the 1970s through recent years to chart federal de cits and the consequences over time. Students can also conduct a cost–bene t analysis at a mock town hall meeting about spending priorities and investment. Students can then apply this information to regional and local levels by comparing the types of taxes that the state and local governments collect and analyze how those tax revenues are being spent.
Students continue to examine the role of the government in the economy by addressing the following questions: Why is there a Federal Reserve Bank? How does it function? e Federal Reserve Bank (Fed), a mixed private/government institution, works to stabilize the economy through monetary policy. Students learn that it acts as a central bank for the U.S. by in uencing the quantity
of money in circulation and by working to raise or lower short-term interest rates. e Fed tends to lower interest rates when ghting recession (a period of temporary economic decline marked by a fall in gross domestic product in two successive quarters) and raises them when it is ghting in ation (a sustained increase in the general price level of goods and services). Students also see
that both monetary and scal policies have limitations in their e ectiveness in ghting recession and in ation. ey also study the role of government in regulating and insuring banks to protect solvency and maintain public con dence in the economy.
In a panel discussion, students may consider a particular economic regulation proposed by legislators (e.g., minimum wage, tax refunds, auto-emission standards). Using data and cost-bene t analysis, students can argue both for and against the regulation. To further extend their learning and provide a service to the community, students may hold the panel discussions in the evening. ey can invite parents and other members of the community interested in better understanding the potential consequences of the proposed regulation.
Labor Markets
What does it mean to work?
How does one compete in the labor market? How are wages determined?
How and why do workers organize?
e question What does it mean to work? can guide students as they explore all that is involved in the labor market—ranging from the small-scale application process for a part-time job a er school to the large-scale quantitative information about labor statistics in the economy.
Students apply their understanding of product markets to analyze labor markets, identifying the skills that are in demand and projections of the growth of future jobs and their educational requirements, and the ways in which they can use their school and training to develop their human capital to meet those skill demands.
Students can consider the following question: How does one compete in
the labor market? In a competitive labor market, a worker’s productivity and contribution to a rm’s revenues determine the demand for his or her services. Government regulations and labor unions in uence the labor markets. e marginal product theory of wages emphasizes the importance of a worker’s human capital (experience, education, skills, and personal qualities) in in uencing their wage. By reviewing the term human capital, students can see the relationship between the amount of education and training workers obtain and their future salaries.
e question How are wages determined? can frame students’ understanding of this component of the labor market. Wages are in uenced by the supply of workers in a particular labor market, as well as by the relative economic power of businesses and workers. ere are far more low-skilled workers who are willing to work for lower wages than highly skilled workers. As a result, low-skilled jobs, such as food service and retail, o en pay lower salaries than do highly skilled jobs, such as computer engineering and medicine.
Students can study how businesses determine the skills required of their workers and investigate the role that this plays in creating pro table enterprises.
By researching economic data and evaluating the source of the data, students can analyze the e ects of migration and immigration on both product and labor markets. Students may review changes in the California labor market in the areas of agriculture, manufacturing, information, and technology to identify change over time in certain industries.
is question can help students understand the role of the labor movement in a ecting workers and the economy: How and why do workers organize? Students also study the history of the labor movement and assess its impact on labor markets, including methods used by unions to gain bene ts for their members. ey can also analyze the role of government in protecting workers’ rights to organize and strike, as well as in preventing excessive disruption from prolonged or violent labor actions. By researching data and evaluating the source of the data, students can participate in an investigation about the e ects of unionization on wages and employment in particular industries, including farm and public sector workers.
Students can participate in a collective bargaining simulation to better understand the competing interests of workers and employers. One group of students can examine the struggles of workers to increase their pay and improve their working conditions. Another group can consider the challenges that employers face to improve productivity, limit
costs, and, in the case of for-pro t businesses, increase pro tability. Students can also examine relevant legislation and court rulings, such as the right to organize, worker safety, and antidiscrimination policies. e rst week of April is Labor History Week. Students may participate in a variety of activities or projects to become aware of the role that the labor movement has played in shaping California and the United States.
is context of the labor market provides the necessary foundation for an analysis of current issues in the marketplace, such as the types of goods and services produced, needed skills, the impact of technological innovation, international competition, and the historical improvement and stagnation of real wages (which means wages adjusted for in ation). Students continue to address the question What does it mean to work?as they wrestle with broader issues in the labor market. As part of this review, students discuss poverty and income distribution in the United States in both historical and contemporary contexts. Students may conduct a mock National Labor Relations Board election to debate the pros and cons of unionization. In addition, students investigate the e ects of international mobility of capital and labor in a globalized labor market. For example, students can consider the impact of international economic agreements, such as the North American Free Trade Agreement (NAFTA), on the labor market. Students can use data and participate in a debate about the impact of outsourcing and insourcing on the U.S. and foreign labor markets.
is unit also provides students with an opportunity to identify and analyze economic problems in their community (e.g., housing, hunger, employment). ey can evaluate local initiatives addressing the problem. Students may also work with local policymakers and community groups to address the challenges. Students who focus on the availability of a ordable housing, for example, may create a Web site or pamphlet that they can distribute to community members detailing resources and tools available from governmental agencies and nonpro t nancial services. Finally, students can participate in mock job interviews to help them evaluate their preparation for entrance into the labor market.
Aggregate Economic Behavior
What is macroeconomics and what does it reveal about the economy? How do data help to tell the story of the economy?
How does a cyclical economy function?
e question What is macroeconomics and what does it reveal about the economy? provides students with a broader way of questioning and investigating the economy. Students learn to “read” the economy, distinguishing real data from nominal data, and recognize the signi cance of major macroeconomic data. Macroeconomics looks at the “big picture” through surveys of the national economy and explains how it is integrated globally. Students will de ne gross domestic product (GDP), consumption, investment, savings, unemployment, and in ation to learn that economic growth is a sustained increase in incomes and output over time.
Small percentage changes in economic growth can have a signi cant impact on employment and price levels. Students will learn how the federal government compiles the measurements for economic growth and income, the unemployment rate, number of jobs created or lost, the rate of changes in the price level, and
the impact of changes in these data on their personal economic and nancial opportunities. e question How do data help to tell the story of the economy?can help students synthesize this breadth of quantitative information. For
a market economy, traditional keys to long-term economic growth include implementing incentives for innovation, investing in capital goods, improving
the human capital of the workforce, and encouraging entrepreneurship and technological innovation.
Market economies experience uctuations in income, output, employment, and price level. Students can consider the following question as they review ordinary uctuations in the marketplace: How does a cyclical economy function? Students analyze various macroeconomic outcomes and the operation of the business cycle in the American economy, including the reasons for the repetitive sequence of booms and recessions throughout its history.
Students learn that a decrease in total spending, or a drop in aggregate demand, may cause periods of contraction in the economy, which in turn causes economic downturns, such as the Great Depression of the 1930s and the Great Recession of 2007 to 2009. Conversely, a high level of aggregate demand relative to aggregate supply may cause in ation. Students learn that hyperin ation, or an extreme case of in ation, is caused by too much money in circulation. Examples include the German experience between the world wars in the twentieth century, Argentina in the 1950s, and more recent experiences of Zimbabwe and Venezuela.
Students can also learn about currency, circulation of currency and understand how that a ects a nation and global markets; Greece’s economic problems that started in the 2010s provide a vivid example of how one country’s nancial problems touch worldwide markets. Students study the importance of interest rates, both in the short term and the long term, in a ecting the business cycle and the operation of the broader economy.
The Global Economy
What is globalization?
How does globalization affect international and national economies and individuals?
Why are there critics of globalization?
In this unit, students address the question What is globalization? Due to trade liberalization policies (the lowering of trade barriers between countries), along with advances in technology, communication, and transportation that speed up trade between countries, all economies throughout the world are more closely integrated with one another today than at any other time in the past. As part of understanding what globalization is, students consider the question How does globalization a ect international and national economies and individuals? Students explore how changes in government policy, technology, information, and the rise of global markets contributed to this process. A sign that the U.S. economy is more globally integrated is the large percentage of exports and imports in GDP. Students will learn what exports and imports are, examine a trade de cit and surplus, and examine the balance of payments. ey learn how the United States economy can be in uenced by external factors, such as an increase in the price of oil on the global market or major changes in the incomes of its trading partners.
Trade occurs globally between individuals and rms due to di ering comparative advantages. To address the uneven consequences of globalization, students consider this question: Why are there critics of globalization? International trade may be mutually bene cial to countries as it encourages specialization based on comparative advantage, increases overall productivity and employment, and lowers prices for consumers. e growth of world trade has contributed to an overall increase in personal income in recent history, but this increase has not been uniform across nations and within nations. Critics of globalization assert that freer trade does not equate with fair trade; certain nations and classes within nations bene t while other nations and classes within nations do not share in the prosperity. Students can analyze protectionist measures used to reduce imports and examine the positive and negative impacts on di erent groups, such as the e ect of trade restrictions implemented during the Great Depression. Students may collect data, evaluate the sources of the data, and use the data to analyze particular trade restrictions of the United States and its trading partners. ey may use the same process to defend or oppose current trade agreements and disputes between the United States and other countries.
Globalizationrefers to the faster and freer ow of goods and services, inputs, money, and ideas around the world, as well as the emergence of a global production system used by multinational corporations. Financial transactions, whether in the form of credit, stocks, or bonds, also ow quickly around the world and cause economies to be closely integrated with one another. Students learn that trade liberalization, technology, information, and lower costs of transportation have all fostered globalization. Students can trace the impact of globalization for themselves, for di erent groups in their own economy, and for groups in other countries. Students can also use their knowledge from tenth-grade world history in examining developing countries and studying how they have been impacted by globalization.
| Grade Twelve Classroom Example: Globalization |
| Ms. Albert’s economics class is in the midst of their study of globalization, and she wants her students to get both an up-close and a broader view of how globalization a ects their daily lives. e question the class considers in this unit is How does globalization a ect me? At the start of class, Ms. Albert directs students to identify one personal item they have on them or in their possession at that very moment. Many students take out their smartphones, some choose their t-shirts, and others look at their backpacks. Ms. Albert then tells students that they will trace how that one consumer item they have chosen has participated in the global economy. She provides her students with a list of information about that item that they must collect: the origin or origins of the item’s raw materials, where it was assembled, the headquarters of the company that produced the item, all the countries that item has passed through, and then its sale in the U.S. She cautions students that some of the information may be hard to trace. However, they can begin by researching the company’s Web site and then nd on a map some of the places where materials are extracted and manufactured. Once students have completed this information about their item, Ms. Albert directs them to tell in one or two paragraphs how their item arrived at the store. |
Example(continued)
Some students begin by explaining how the concept of the item started, and others begin with the physical manufacturing of the item itself. But all of Ms. Albert’s students conclude with a statement of how their lives are shaped by globalization; they recognize that the wide-scale availability of a ordable consumer goods is made possible because of the global marketplace.
CA HSS Content Standards: PE 12.2, 12.6
CA HSS Analysis Skills (9–12): Chronological and Spatial inking 3 CA CCSS for ELA/Literacy: RH.11–12.7, 9, WHST.11–12.2, 7
Students can also consider the impact of global trade on American foreign policy by investigating the impact of globalization on poverty, the environment, urban slums, child labor, women’s rights, or AIDS/HIV through case studies, group presentations, or model United Nations sessions. Students can explore the human rights issues that arise in the context of global trade. Issues may include the rights of children, rights of women, and the rights to employment, education, health care, and leisure as recognized by the Universal Declaration of Human Rights. How are the rights of individuals, families, and groups protected in a globalized economic system? Students also learn about examples of sustainable development.
Micro nance and microloans also play key roles in the globalized economy. Working in small groups, students can study requests for micro- nancing from various regions of the world. Using criteria known to lead to successful loans, groups can assess the proposed projects and make presentations to the rest of the class about the project they believe will have the most sustainability for the new economy. e class can vote for their top project. To bring student learning full circle and return to the initial guiding question How is economics about scarcity?, teachers may have students analyze micro nance and global economics through this lens.