Subject:
Economics
Material Type:
Module
Level:
Community College / Lower Division, College / Upper Division
Provider:
Ohio Open Ed Collaborative
Tags:
Economic Philosophies
License:
Creative Commons Attribution Non-Commercial
Language:
English
Media Formats:
eBook, Text/HTML

Economic Philosophies: Course Map & Recommended Resources

Overview

     Looks at several different approaches to Economics and compares them in terms of important economic variables. While none of these philosophies are always correct, we will see that each has a role to play in explaining some aspect of economics for some time period.

Learning Objectives

  1. Comprehend the determinants of important macroeconomic variables, including the level of income, the level of employment, the unemployment rate, the natural rate of unemployment, the price level, the inflation rate, productivity and the rate of interest (5)
  2. Comprehend the effects of fiscal and monetary policies (9)
  3. Comprehend the concept of long run growth and policies to affect growth (13)
  4. Apply economic reasoning to better understand and critically evaluate real world circumstances and events (16)

Learning Topics:

  1. Command Economies; socialism and communism
  2. Monetarist, Real Business Cycle and Austrian Economics
  3. Keynesian and Neo-Keynesian Economics
  4. Classical and Neo-Classical Economics

NOTE: This Module meets Ohio TAG's 1, 14, 15 & 16 for an Intro to Macroeconomics Course

Supplemental Content/Alternative Resources

Alternative Economics Sources

 

Non-open Access Texts

  • Principles of Economics, Twelfth Edition

    • Authored by: Case, Karl E., Ray C. Fair and Sharon M. Oster (2017). Provided by: Pearson Publishing.

  • Macroeconomics, Twelfth Edition

    • Authored by: Gordon, Robert J. (2012). Provided by: Pearson Publishing.

  • Rethinking Macroeconomics: an Introduction

    • Authored by: McDonald, John F. (2016). Provided by: Routledge Publishing.
  • Economics, Fourth Edition

    • Authored by: Stiglitz, Joseph E. (2007). 

 

Additional Resources (Grouped by Learning Topics)

Command Economies: Socialism and Communism

  • Capitalism vs. Socialism
    • Overview of differences between Capitalism and Socialism, including history and similarities.
    • Authored by: Diffen. Retrieved on: November 1, 2018.
  • Communism vs. Socialism
    • Overview of differences between Communism and Socialism, including history and similarities.
    • Authored by: Diffen. Retrieved on: November 1, 2018.
  • Communism – Khan Academy
    • Video giving an overview of Communism, stressing role and power of workers and owners of capital.
    • Authored by: Kahn, Sal. Retrieved on: November 1, 2018.
  • When Capitalism is Great and not-so Great – Khan Academy
    • Video exploring aspects of Capitalism that might lead some to observe aspects in which it might be less than optimal.
    • Authored by: Kahn, Sal. Retrieved on: November 3, 2018.

 

Monetarist, Real Business Cycle and Austrian Economics

 

Keynesian and Neo-Keynesian Economics

Classical and Neo-Classical Economics

  • What is Classical Economics?
    • Overview of the history and philosophy of Classical Economics.
    • Authored by: Academic Room. Retrieved on: November 1, 2018.
  • Difference Between Classical & Neoclassical Economics
    • Comparison of Classical and Neo-Classical Economics, especially focusing on differences in analysis of macroeconomic variables.
    • Authored by: Hamilton, Samuel. Retrieved on: November 1, 2018.

Topic Exercise

Active Learning Exercise

Macro Madness

A Bracket Approach to Economic Philosophies: Which Economic Philosophy can best be defended?

Before activity: Assign class into eight groups, each representing a different economic Philosophy. Each philosophy will be put into a bracket. The philosophies that “made the cut” and are “invited to the dance” are:

  • Classical Economics
  • Keynesian Economics
  • Monetarist Economics
  • Real Business Cycle Economics
  • Austrian Economics
  • Command Economies
  • Keynesian Economics in the Keynesian region of the AS curve
  • Keynesian Economics in the Classical region of the AS curve

Using some random process, arrange the various philosophies into “brackets”, similar to those found in the playoffs for the NCAA basketball finals, often called “March Madness.”

And the Brackets are...

To play: Beginning with a coin flip to determine who goes first, each team “plays” the indicated opponent. The winner of the coin toss will be referred to as the “first team.”

A “game” is played by each team presenting answers to the following questions (“baskets”). The goal of each team is to present their philosophy in the most favorable light.

To play a round of “Macro Madness,” the following questions are answered by each team in turn.

  1. First team: what is your philosophy?   

  2. Response of second team; what is your philosophy 

  3. First team: explain your philosophy in a few sentences 

  4. Response of second team; explain your philosophy in a few sentences

  5. First team: whose name is most often associated with this philosophy? 

  6. Response of second team; whose name is associated with this philosophy? 

  7. First team: is this philosophy related to some particular time in history? Which? 

  8. Response of second team; time in history related to philosophy 

  9. First team: is there a particular country associated with this philosophy?

  10. Response of second team; particular country associated with philosophy

  11. First team: what does your philosophy say about output? 

  12. Response by second team about how they differ from original team about output?

  13. First team: what does your philosophy say about unemployment?

  14. Response by second team about how they differ from first team about unemployment?

  15. First team: what does your philosophy say about inflation?

  16. Response by second team about how they differ from original team about inflation?

  17. First team: what does philosophy say about effect of fiscal policy on output?

  18. Response from second team about effect of fiscal policy on output?

  19. First team: what does philosophy say about effect of monetary policy on output?

  20. Response from second team about effect of monetary policy on output?

  21. First team: what does philosophy say about effect of fiscal policy on inflation?

  22. Response from second team about effect of fiscal policy on inflation

  23. First team: what does philosophy say about effect of monetary policy on inflation?

  24. Response from second team about effect of monetary policy on inflation?

  25. Summary of first team.

  26. Summary of second team.

 

Notes on determining winner:

Each “basket” is worth either zero points or two points.

The addition of graphs of statistics in an answer turns a two point “shot” into a three point shot.

After each round, the winner moves on to the next “bracket” until a winner is determined.

Note to teacher: while the teacher might want to be the sole grader on this, it may also be possible to have the students participate in grading using a student response system (sometimes called “clickers”) to help keep students engaged and give them “ownership” of the process.

Data Activity using FRED

To the Student: You and your classmates have been hired to determine which economic philosophy is best supported by data from history. You are to find relationships from data and, using them, decide which philosophy is best supported by the data your studied.

Using the FRED site, create the following graphs showing the relationship between macroeconomic variables during the indicated time periods. For each set of variables,

Have the computer produce a scatterplot of the two given variables and print it out the relationship found. Do this for:

  1. Real Gross Domestic Product, Billions of Chained 2012 Dollars, Seasonally Adjusted Annual Rate (GDPC1) and M2 Money Stock, Billions of Dollars, Seasonally Adjusted (M2) for the years 1980-2018
  2. Federal budget outlays, (M318191A027NBEA) and Real Gross Domestic Product, Billions of Chained 2012 Dollars, Seasonally Adjusted Annual Rate (GDPC1) for the years 1952-2016.
  3. Index of the General Price Level for United States, Index 1913=100, Not Seasonally Adjusted (M04051USM324NNBR) and Real Government Consumption Expenditures and Gross Investment, Billions of Chained 2012 Dollars, Not Seasonally Adjusted (GCECA) for the years 1929-1939.
  4. Real Government Consumption Expenditures and Gross Investment, Billions of Chained 2012 Dollars, Not Seasonally Adjusted, (GCECA) and Consumer Price Index for All Urban Consumers: All Items, Index 1982-1984=100, Seasonally Adjusted (CPIAUCSL)1980-1990
  5. Natural Rate of Unemployment (Long-Term), Percent, Not Seasonally Adjusted (NROU) and Consumer Price Index for All Urban Consumers: All Items, Index 1982-1984=100, Seasonally Adjusted (CPIAUCSL) for 1992-2006.

Using the  data sets in FRED, create a graph showing the relationship between these two variables for the indicated time period.

For each graph, use the CSV data program to calculate the correlation coefficient between the two variables.

Choose from the following ideas to match your graph with an economic philosophy:

  1. Keynesian Economics, on the Classical portion of the Aggregate Supply curve

  2. Keynesian Economics, on the Keynesian portion of the Aggregate Supply curve

  3. Keynesian Economics, on the upward sloping portion of the Aggregate Supply curve

  4. Monetarist Economics

  5. Real Business Cycle model

In each case, justify why you matched each graph with the indicated philosophy.


Possible Grading Rubric:

A. 25 points, 5 points each for

  • Correct variable 1 is used
  • Correct variable 2 is used
  • Correct beginning of time period is used
  • Correct ending of time period is used
  • The data are presented as a scatterplot

B. 25 points, 5 points each for

  • Data are correctly downloaded into CSV
  • The appropriate observations were highlighted to calculate the correlation coefficient
  • The correct time period is used to calculate the correlation coefficient
  • Correct interpretation of the correlation coefficient is given
  • The correlation coefficient supports the student’s decision about which philosophy is illustrated.

C. 25 points, allocated according to how many correct graphs are chosen

  • Student chose 1 correct graph
  • Student chose 2 correct graphs
  • Student chose 3 correct graphs
  • Student choses 4 correct graphs
  • Student chose 5 correct graphs

D. 25 points, 5 points each for a sentence or two about:       

  • Explanation of theory behind economic philosophy
  • What that philosophy would predict about given variables
  • What calculated correlation coefficient implies about relationship between two variables.
  • Why at least one other graph was not chosen for a particular philosophy.
  • What might make for an even better graph (more exact data, other years, etc.)

Answer key to data activity:

  1. https://fred.stlouisfed.org/graph/?g=lNT4#0: Monetarist Economics, r = 0.93951. Reason: strong positive relationship between money supply and GDP
  2. https://fred.stlouisfed.org/graph/?g=lNUZ: Keynesian Economics on upward sloping portion of AS curve. R = 0.97235. Reason: strong positive relationship between federal budget and GDP
  3. https://fred.stlouisfed.org/graph/?g=lNYO Keynesian Economics on Keynesian portion of AS curve, r  = -0.00045​​​​​​. Reason: practically no relationship between price level and C+I+G
  4. https://fred.stlouisfed.org/graph/?g=lNZh Keynesian Economics on Classical portion of AS curve, r = 0.94734. Reason: strong positive relationship between government expenditures and price level
  5. https://fred.stlouisfed.org/series/NROU#0 Real Business Cycle Theory, r = -0.00551. Reason: practically no relationship between price level and natural rate of unemployment

Note to teacher: This activity is expansive enough that you may want to form teams of five students, assigning each student one of the graphs to produce. As a group, they would then come together to match their resulting graphs with the possible philosophies.

In addition, you may choose to not include the calculation of the correlation coefficient, depending on the level of challenge you want for your students’ math skills.

FAQS about FRED

Some general links that will help with FRED:

1. What is FRED, and how do I get into it?

  • “FRED” stands for “Federal Reserve Economic Data” and is a collection of publicly available data maintained by the Federal Reserve Board of St. Louis.
  • FRED may be accessed at FRED. Upon entering the web site, either create a password (“register”) or use an already created password (“sign in”). The links to do this are found in the upper right-hand corner of the page.

2. How do I create a graph from a data set I am interested in using?

  • To find a data set, search using a keyword, and then select the appropriate data set from the list that appears. (Be sure to pay attention to which years are available for use. A companion collection of historical data is also available for earlier years.)
  • Upon selecting a data set, a graph of that data will appear on your screen.

3. How do I change the years covered by a graph?

  • Above your graph will be two spaces indicating the years that the graph is illustrating.
  • To change a year, click on the appropriate box and move the cursor through possible years until the correct one appears. Once in a year, select the appropriate month for that year.
  • Change the Time Range

4. How do I change the type of graph?

  • Go to “Format” and change the type of graph to the one desired. For example, you can create a scatter plot or a line graph using this dialogue box.

5. How do I create a two-dimensional graph?

  • Go to “edit graph” and you will be able to add a variable to your graph.
  • The first variable entered will become the variable on the vertical axis, while the second will be the variable on the horizontal axis. If you want to, you can in “Format” when editing the graph.
  • Customize Data, Add Series to Existing Line

6. How do I change a graph?

  • Once a graph is created, go to “edit graph” to make changes. In this dialogue box, you can make many changes. Some possible changes include adding more variables, changing which variable appears on the horizontal or vertical axis, changing the type of graph, and changing the dimensions of the graph.
  • Format the Graph and Line Settings

7. How do I save a graph?

  • In FRED, with your graph on the page, go to “Account tools” and click on “Save Graph”. This will bring up a dialogue box that will allow you to name your graph.
  • Save Your Graphs

8. How do I download data into a spreadsheet?

  • With the graph on the page, go to the “Download” button in the upper right hand corner of the page. Once there, select “CSV” from the options, and the data will soon appear in a spreadsheet.
  • Downloading Data from FRED

9. How do I do statistics with my data?

  • Use the statistical tools from CSV or Excel to do statistical analysis. You may need to upload a supplementary tool to allow you to do more advanced statistics, such as some types of regressions.

  10. How do I calculate a correlation coefficient in CSV?

  • To calculate a correlation coefficient in CSV, download your data and open as a spreadsheet. Once in the data, click on “Data”.
  • An option will appear on the upper right hand side that says “Data analysis”. Click on this, and a list of possible statistical options will appear. Click on “correlation”.
  • Once in “correlation”, highlight the part of your data set that you want to use to calculate a correlation coefficient (you may need to move columns around to be able to do this.) As you highlight the correct rows and columns (be sure you are calculating the coefficient for the correct parameter; either “rows” or “columns”), the labels for these spaces will appear in the dialogue box. Once they are correct, click on “ok”. A correlation coefficient will appear on the spreadsheet.
  • The  correlation coefficient, “r” is a numerical value that summarizes that relationship between two variables. Values close to 1 and negative 1 indicate a strong relationship, while values close to zero indicate very little relationship between two variables.
  • Calculating Correlation Coefficient R (Video)

11. How do I share graphs?

  • Go to “share links” and click on “paper short URL” to have the program create a shareable URL link for your graph.
  • Share my FRED Graph

12.  How do I re-access graphs I have created?

  • Go to “Account tools” and select “My Account” The graphs you have saved will appear, along with a notation as to when they were created.

 

Works cited in “FAQS about FRED”

Federal Reserve Board of St. Louis. “FRED: Economic Research” Retrieved on October 27, 2018 from https://fred.stlouisfed.org/.

Federal Reserve Board of St. Louis. “FRED: Master 10 tools in 10 minutes” Retrieved on October 27, 2018 from https://news.research.stlouisfed.org/2016/01/fred-master-10-tool-in-10-minutes/

Federal Reserve Board of St. Louis. “Frequently Asked Questions”  Retrieved on October 27, 2018 from https://fredhelp.stlouisfed.org/#fred-faq-frequently-asked-questions.

Federal Reserve Board of St. Louis. “Getting to Know FRED: Changing the Time Range” Retrieved on October 27, 2018 from https://fredhelp.stlouisfed.org/fred/graphs/customize-a-fred-graph/change-graph-time-range/

Federal Reserve Board of St. Louis. “Getting to Know FRED: Customize Data, Add Series to Existing Line.” Retrieved on October 27, 2018 from https://fredhelp.stlouisfed.org/fred/graphs/customize-a-fred-graph/data-transformation-add-series-to-existing-line/

Federal Reserve Board of St. Louis. “Getting to Know FRED: Downloading Data from FRED” Retrieved on October 27, 2018 from https://fredhelp.stlouisfed.org/fred/data/downloading/using-the-download-data-link/

Federal Reserve Board of St. Louis. “Getting to Know Fred: Save Your Graphs” Retrieved from https://fredhelp.stlouisfed.org/fred/account/fred-account-features/save/

Federal Reserve Board of St. Louis. “How can I find Data on FRED?” Retrieved on October 27, 2018 from https://fredhelp.stlouisfed.org/#fred-data-how-can-i-find-data-on-fred

Federal Reserve Board of St. Louis. “Getting to Know FRED: How Can I Share My FRED Graph?” Retrieved on  October 27, 2018 from https://fredhelp.stlouisfed.org/category/fred/graphs/share-my-fred-graph/

Kahn, Sal. “Calculating Correlation Coefficient r (video with text)” Retrieved on October 27, 2018 from https://www.khanacademy.org/math/ap-statistics/bivariate-data-ap/correlation-coefficient-r/v/cal