> > From Data and Theory to Real Life: The Impact of the Great Recession

From Data and Theory to Real Life: The Impact of the Great Recession

Maria Bravo-Gonzalez, Business and Economics Department, St. Louis Community College - Meramec
This material was originally created for Starting Point: Teaching Economics
and is replicated here as part of the SERC Pedagogic Service.

Summary

According to the National Bureau of Economic Research, the Great Recession officially spanned from December 2007 to June 2009. This activity is intended to help students better understand the behavior of the macro economy and how they have impacted students in their personal lives during that time period. Students will be applying FRED data to the macro theory learned in class. The module includes a written assignment and an in-class discussion.

Learning Goals

The economic concepts covered in this activity include: Circular Flow Model, RGDP, Unemployment Rate, lagging indicators, and how to interpret what they hear/read in the media.

After completing this activity, students should be able to:
a. Learn and solidify the correlation between the performance of RGDP as a measure of production and income, and the unemployment rate.
b. Find data series, plot it, and analyze results through a series of questions to help focus their answers.
c. Understand how the dynamics of the macro economy also impact the economic well being of individual students and their inner circle.
d. Realize that the unemployment rate does not tell the full story of lack of labor utilization
e. Identify the consequences of recession at the macroeconomic and at the individual level

Context for Use

- This activity is designed:
o For principles of macroeconomics courses (freshman/sophomore level)
o For small classes (no more than 20) for the in-class reporting and additional discussion. Otherwise, it eats a lot of time.
o However, if the class has more than 20 students, each group can have more members and the instructor might decide to be more targeted in the assignment. For example, some groups can focus on the impact on RGDP while others can concentrate on unemployment, others in the price level, others in interest rates, etc... When it comes to the in-class presentation, instructors can randomly select a group from each topic for a comprehensive representation on all major macro indicators.
o For about 40-45 minutes of in-class time.
o For most student demographics:
 Adult students know the effects through life experience, but may not know the causes, the drivers, or the origins. However, some older students are not comfortable using the internet.
o For intensive in-class lectures, such as once-a-week evening courses. This activity helps break up the time and get students more engaged in their learning.
o As a homework assignment after covering the economic theory on the Circular Flow Model, RGDP, and Unemployment Rate.
o To complement a lecture.
o As an opportunity to clear misconceptions and fill in the gaps on macro concepts they might have heard about outside the classroom (i.e. media, community, work, etc...). For example, students tend to believe that the unemployment rate includes everyone who does not have a job, whether they institutionalized, they decide not to work, have given up, etc...
o As an example of a real life application of economic theory, to help students understand the relevance of macro theory and the overall economy's performance to the individual.
- Tools students need:
o Access to a computer with internet access, so the first part of this activity is lends itself better to be a homework assignment.
o To be comfortable navigating web sites and doing searches within
o Elementary Algebra (i.e. how to calculate an average, what a simple percentage means, how to calculate a percentage change)
o Basic knowledge of manipulating spreadsheets in Microsoft Excel (i.e. sorting data, basic formulas, simple graphing, formatting)
- This activity can be easily adjusted to:
o A different time period: Great Depression, economic boom of the 1990s, after-WWII period, the oil crisis and the 1970s, etc...
o An International Economics course by having different teams work on different countries, to help understand the differences in living standards.

Description and Teaching Materials

This is a two-part activity. The first part is a written assignment for students to complete on their own. The second part is an in-class discussion.

Written Assignment (See the Exhibit 1 file below for details)

The written assignment will focus on students using FRED to find macroeconomic data for the period of the Great Recession and analyzing their findings. Students will be given at least 2 weeks to complete this part. Students will need:
1. This activity is more effective after covering:
1. Concepts of RGDP and Unemployment Rate (i.e. measurement, calculation, inclusions, exclusions, etc...)
2. Dynamics of the Circular Flow Model
3. Understanding the cause-and-effect relationship between RGDP and the Unemployment Rate
2. Use the RGDP and Unemployment Rate data available at the St. Louis Federal Reserve Bank FRED Economic Data database (http://research.stlo buisfed.org/fred2/):
3. Download data to Excel.
4. Plot both series on the same graph using EXCEL for some simple manipulation. This can be done directly in FRED by using the graphing feature.
5. With the data series and graph in front of them, students will use the worksheet on EXHIBIT 1 to help them focus their analysis and their report.
6. Students will turn in this assignment for grading and correcting.

In-Class Discussion

The day the written assignment is due, a class discussion will be held to:
1. Share the conclusions of the analysis (i.e. economic impact on the aggregate economy)
2. Students will work in pairs or trios for 15 minutes to discuss the economic impact of the economy's performance during this period on the individual students and/or their inner circle (see Exhibit 2 worksheet below)
3. Each team will have more members for larger classes. The instructor will randomly select groups to present, but all groups are required to submit the written assignment.
4. Open up the discussion for the entire class to share their individual conversations and conclusions:
i. Capture all the answers from the different groups on the board, so students have an opportunity to complement their answers with those from their classmates.
ii. After going through all the answers on the worksheet, ask students:
1. Take a moment to consider the similarities and the differences of the
answers from your classmates.
2. What does the discussion show about how different individuals make decisions, how different individuals have and use different incentives?
iii. Remind students that there will be a question about this activity on the next exam.
Written Assignment (Microsoft Word 2007 (.docx) 14kB May26 13)
In-Class Presentation (Microsoft Word 2007 (.docx) 13kB May26 13)


Teaching Notes and Tips

1. For the pair/trio/team discussion:
a. Limit to 15 minutes but plan for 20 as a buffer.
b. Pace around the class, make yourself available to answer questions from students

2. For the discussion presentation:
- Spend about 20-30 minutes on this portion of the activity
- Logistics:
o Remind students that there will be a question on this activity on the next exam, so they might want to write down the contribution from their classmates different from theirs.
o Orderly invite each pair/trio to present the outcome of their discussions to the rest of the class.
o Divide the board according to categories to help organize the impact on each area (i.e. employment, spending habits, retirement, savings, other...)
o Once every pair/trio has presented, open it up for additional discussion, Q&A
- Housekeeping notes:
o Remind students of the ceteris paribus assumption!
o Make sure students focus on the economic impact the macro economy has on their lives and do not deviate to other impacts.
o Depending on the size of the classroom, limit the presentation to their main 3 points of their discussion.
- Others:
o This activity can be done using data from any country and from other time periods.

Assessment

The written assignment will be graded and corrected by the instructor. Focus will be placed on understanding of the assigned topics, analysis of the behavior of assigned topics using sound economic theory (i.e. presented in class), correct use of economic terminology and graphs to complement analysis, and inclusion of all the elements required to complete the assignment.
The in-class discussion might be captured as a test question. Students will be asked to recall a scenario discussed during the live presentation and summarize the analysis and outcome by using the corresponding macro theory.

References and Resources

http://research.stlouisfed.org/fred2/

http://en.wikipedia.org/wiki/2008%E2%80%932012_global_recession

http://www.investopedia.com/terms/g/great-recession.asp

http://money.cnn.com/2009/03/25/news/economy/depression_comparisons/index.htm

http://economix.blogs.nytimes.com/2009/03/11/great-recession-a-brief-etymology/

http://topics.nytimes.com/top/reference/timestopics/subjects/r/recession_and_depression/index.html

http://www.washingtonpost.com/blogs/wonkblog/post/the-great-recession-in-five-charts/2011/09/13/gIQANuPoPK_blog.html