Unemployment or Inflation? That is the question!
and is replicated here as part of the SERC Pedagogic Service.
This module is designed to teach students that the Phillips Curve, which shows a tradeoff between unemployment and inflation in the short run, is a theoretical concept that really exists in real life and is substantiated by real macroeconomic data. At the same time, it is hard for economist to prescribe the right Fiscal and/or Monetary policies to fight one problem, for fear of creating the other. Therefore, based on their findings, students will suggest the best policy for the most prevalent problem. Students will work with the St. Louis Federal Reserve FRED economic database to complete a written assignment on a different country that will be presented to the rest of the class.
Context for Use
- The instructor will cover the theory behind the Philips Curve and use the United States as the example.
- Use towards the end of the course, as a semester project.
- Assign the project at least a month in advance.
- More manageable for students to work in pairs.
- Each pair will have 10 minutes to present their country's findings to the rest of the class plus 5 minutes for Q & A.
- Students might want to use Power Point, videos, the internet, etc... for their in-class presentation, so a smart class is more appropriate.
- Since students will be presenting to the class and there will be a question included in the final exam, this activity works better for classes with no more than 20 students.
- If the class size is very small, the instructor might choose to assign the same country to all pairs and compare and contrast their findings and policy recommendations.
- Since this activity can take a long time overall, the instructor might schedule the presentations at different class sessions, mixing lecture and presentations.
Description and Teaching Materials
Written Report (please refer to Exhibit 1 below for more information)
STEP 1 – Students will work in pairs.
STEP 2 – Once the pairs have been identified, the instructor will select as many countries as there are pairs. Each pair will be assigned a different country, to avoid redundancy and to allow students to learn about other countries. Select a variety of developed and underdeveloped countries.
STEP 3 - Students will use the FRED economic database to find the unemployment and inflation data for the assigned country and analyze their findings. Students will be given at least one full month (i.e. 4 weeks) to prepare the written paper. For this portion, students will need to:
1. Feel comfortable with:
1. Concepts of Unemployment Rate and Price Level (i.e. measurement, calculation, inclusions, exclusions, types, etc...)
2. Understanding the relationship between Unemployment and Inflation in the short run, when prices are sticky (i.e. The Philips Curve).
2. Use the RGDP, Unemployment Rate, and Price Level data available at the St. Louis Federal Reserve Bank FRED Economic Data database (http://research.stlouisfed.org/fred2/)
3. Download data to Excel for some simple manipulation – the Price Level is given as an index, so students will have to calculate the percentage change.
4. Plot both series on the same graph using EXCEL.
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 to the rest of the class.
6. Students will turn in this assignment for grading and correcting after their in-class presentation.
The day the written report is due, a class discussion will be held to:
1. Present an overview of the assigned country's economic performance.
2. Share the conclusions of the macro economic analysis for Unemployment and Inflation – answer the question if the Phillips Curve holds or not for the assigned country.
3. Make recommendations for policy makers in regards to Fiscal and/or Monetary Policy for the most prevalent of the two.
4. Invite fellow classmates to ask questions.
Written assignment for Unemployment or Inflation activity (Microsoft Word 2007 (.docx) 15kB May26 13)
In-class presentation guidelines (Microsoft Word 2007 (.docx) 12kB May26 13)
Teaching Notes and Tips
- Select a mix of countries in different parts of the world and at different stages of economic development.
o Prepare a handout on expectations for the presentation for the students (see Exhibit 2)
o Both students in the pair will present.
o 10-minute presentation per pair plus 5 minutes to answer questions from classmates.
o If presentations span over several class periods, remind students presenting first that they must attend their classmates presentations.
o Have presenting students prepare a one-page handout to distribute to classmates. Teams can e-mail the handout to instructor ahead of time for copying.
o Share list of countries with the class, and encourage students to prepare a list of questions for each country, so there is some interaction in the classroom after each 10-minute presentation.
o Once every pair has presented, summarize the main findings (i.e. commonalities across countries, if any; main differences among countries, main teachings of the Philips Curve, etc...)
For the presentation focus on:
- Content – does the presentation touch on all major points from Exhibit 1?
o Use of visuals and technology (i.e. overheads, Power Point, handouts, videos, etc...)
o Maintaining the interest of the audience
- Answers to classmates questions – is the same member of the pair answering all questions, are the answers substantiated with evidence or economic theory,
For the written assignment, focus on:
- Content – make sure all questions in Exhibit 1 have been answered or addressed.
- Documentation – make sure that students include citations of the sources they have used to get their information.
- Make sure that the names of both pair members appear on the front of the paper.
- Make sure that the team followed the instructions on Exhibit 1.
For the question in the final exam may be:
- A summary of the main teachings of the Philips Curve
- Specifics about a country (high level; no memorization of data)
- An application of the teaching of the Philips Curve activity to help explain the meaning of a paragraph taken from an article in the Wall Street Journal, The Economist, The New York Times, etc...
References and Resources
CIA – The World Factbook - https://www.cia.gov/library/publications/the-world-factbook/