Issue 5, Fall 1992

William A. McEachern, Editor

Grapevine

Davis Folsom of the University of South Carolina uses the following metaphor to help students develop an appreciation for macroeconomics. The day-to-day responsibilities of a firm's manager--dissatisfied customers, sick employees, late deliveries, government regulations, and the like--could be likened to swatting mosquitoes that fly into the business environment. A failure to deal with each pesky problem will nibble away at the bottom line. But a manager so preoccupied with mosquitoes may fail to notice the arrival of the lion, a lion that could devour a manager not alert to its presence. Changes in the macroeconomy, such as Fed policy, fiscal policy, or consumer confidence, are like that lion. Successful managers must learn the ways of the "king of the jungle."

James R. Ranney of the University of Alaska helps students distinguish between a change in demand and a change in quantity demanded by always substituting the phrase "demand curve" for demand. Thus, changes in the "demand curve" are easily recognized as shifts in the curve. He does the same with the distinction between changes in supply and changes in quantity supplied. More generally, he also tries to make economics less intimidating by insisting that economists are simple-minded people. For example, ceteris paribus really means that the simple-minded economist can deal with only one change at a time.

Ted Scheinman of Mount Hood Community College teaches economics as a way of solving mysteries in the real world. His approach follows the Joint Council on Economic Education's "Capstone" program. Students are given a small business card containing the following "Handy Dandy Clues to Economic Comprehension": people economize, all choices involve costs, people respond to incentives, economic systems influence individual choices and incentives, voluntary trade creates wealth, and the consequences of choices lie in the future. Relying on articles from The Wall Street Journal, students learn first how to state economic mysteries and then how to solve them. With regard to the open-book issue raised in the last "Grapevine," Professor Scheinman also has found that his open-book exams encouraged students to postpone studying until the test itself. During the exam, the room got noisy as students thumbed through the book. Instead of an open-book exam, he now allows students to bring to the exam a one-page "cheat sheet." Students say the process of preparing the one-pager forces them to organize their thoughts so well that they do not have to refer to it much during the exam.

Speaking of exams, Brad Loomis of the Rochester Institute of Technology used the following system when he was at Wells College, which has an honor system (so exams are not proctored). He imposed a set of taxes: from a 100 point exam, the student incurred a 5 point tax for the use of notes during the exam, a 5 point tax for use of the textbook, and a 5 point tax for taking more time than allotted. About one-third of the students paid at least one of the taxes. He said there were no complaints of any kind regarding the system. To make lectures more interesting, he recommends occasionally going to class with no notes at all and lecturing that day a cappella --just you, the chalk, and the blackboard.

An earlier newsletter talked about the poetry of economics. To "shake up" students Benjamin B. Greene, Jr. of Salisbury State University writes poems about economic concepts. Several musicians in the class came up with the melody for a recent poem. The result was a tune about fiscal and monetary policy called "'R' Gap and the Policy Makers." The lyrics are 60 lines long--too long to publish here. But here is a sample, which should be sung to a calypso beat: "Mul-ti-pli-ers Mul-ti-ply in Na-tur-al pro-pen-si-ty Ev-ry de-crease bring a-no-ther. It's the way of life you see." Those interested in the complete lryics can write Professor Greene at the Department of Economics and Finance, Salisbury State, Salisbury, Maryland, 21801.

To explain economic events, Donald A. Coffin of Indiana University has students uncover information on relative price changes. In the process, they not only learn where to look for data but they develop an appreciation for the role of relative prices. he recommends the Statistical Abstract of the United States as a valuable source of information about relative prices. It shows, for example, that between 1975 and 1987 the price of hardcover books declined relative to paperbacks; during the same period, hardcover books increased as a percentage of all books sold.

James R. Stroo of the University of Southern Mississippi has developed a way of dealing with late students and others who disrupt class. He warns in the syllabus that academic penalties may be imposed on those who distract the other 40 students. Each student is allowed two such incidents without penalty, but each additional disruption incurs a 10 point penalty (from a course total of 450 points). He says that since students are unwilling to pay this price their behavior improves.

Paul C. Clement of Nassau Community Colleges tells us the following story to distinguish between rational expectations and adaptive expectations. "One summer while visiting the Bronx Zoo, I witness a five-year-old pushing his finger inside the monkey's cage. About the fifth time the monkey bit his finger. He pushed it in again and was bitten once again. The third time his finger started to bleed and he ran crying to his mother." According to adaptive expectations, the reaction to changes in economic policy is similar to that of the five-year-old--that is, people continue to make decisions as before until they have sufficient proof that the change is permanent. Rational expectations argues that intelligent people might be fooled once but are not likely to repeat mistakes. As soon as a new tax bill becomes a certainty, people adjust accordingly. (Incidentally, a recent example of rational expectations was how carefully the residents of Louisiana prepared for Hurricane Andrew after observing its destructive force in Florida.)

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