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Education Resources

The case of the ailing economy

magnifying glass over chartsIntroduction
If you watch the news, surf the Internet, or turn the pages of a newspaper or news magazine, you will see a lot of talk about the current conditions and outlook for the U.S. economy. With so many news sources and sets of data, it can be challenging for students to decipher the commentary and economic jargon. In fact, with so much to learn just with the basic economic concepts and indicators, students may find it difficult, even overwhelming, to connect these concepts to the current state of the economy. So how can you get your students engaged in a discussion of current economic conditions?

Below is an exercise that you can use as a culminating activity for a unit on economic indicators. You can use this activity to engage your students in a discussion by asking them to approach the discussion as a project. You will be asking them to demonstrate their knowledge of current conditions through research and application. In this way, they can develop critical thinking skills by investigating the topic and applying their findings.

Laying the foundation
Before you begin the project, review some key concepts and terms, such as those in the following list:

  • Unemployed: The total number of adults (aged 16 years or older) who are willing and able to work and who are actively looking for work but have not secured a job
  • Unemployment rate: Measures the portion of the labor force that is unemployed
  • Labor force/workforce: Collectively, those people aged 16 years or older who have jobs or are looking for jobs, or the number of employed plus the number of unemployed
  • Consumer price index (CPI): A weighted average of prices of a specified set of goods and services purchased by wage earners in urban areas
  • Inflation: The rate at which the average of all prices of goods and services is rising
  • Deflation: The rate at which the average of all prices of goods and services is falling
  • Gross domestic product (GDP): The monetary value of all the finished goods and services produced within a country's borders in a specific time period; usually calculated on an annual basis. It includes private and public consumption, government outlays, investments, and exports less imports. (Given that consumption is typically the largest GDP component in the economy, you may wish to alert your students of the importance of data concerning consumer spending.)

    GDP = C + G + I + NX, where:

    C=The total all consumption in a nation's economy
    G=The sum of government spending
    I=Investment, or the sum of all of the country's businesses' spending on machinery, equipment, and construction
    NX=The nation's total net exports, calculated as total exports minus total imports

  • Real gross domestic product (real GDP): A commonly used indicator of the economic health of a country;  measures quarter-to-quarter GDP growth annualized and adjusted for inflation

Building the base
Introduce the students to some resources for finding information about the economy.

As the central bank of the Unites States, the Federal Reserve System plays an integral role in our nation's economy. In addition to its responsibilities in payments systems and bank supervision and regulation, the Federal Reserve conducts the nation's monetary policy. To fulfill this role, the Federal Open Market Committee (FOMC), the primary policymaking body of the Federal Reserve System, reviews economic data and anecdotal information from its boards of directors to understand economic conditions and develop policy actions aligned with current conditions and forecast models. In support of this effort, each Federal Reserve Bank gathers and analyzes data to prepare each Reserve Bank president for the FOMC. FOMC statements provide excellent insights into current conditions.

Given the integral contributions of the 12 Federal Reserve Banks in to monetary policy, the website and public resources of each Federal Reserve Bank provide information on the current conditions and outlook for our nation's economy.

Reading the speeches of the Bank presidents is an excellent way to learn about economic conditions, as is the Federal Reserve System's Beige Book, a compendium of anecdotal information about current economic conditions by economic sector and by Federal Reserve District. The Beige Book appears eight times a year.

Another good source of economic information is the Federal Reserve Economic Database. FRED, which is maintained by the St. Louis Fed, stores more than 30,000 economic time series, which students can use to create and download customized graphs of specific economic indicators. This example represents real GDP and the unemployment rate over the past decade.

chart 1

This graph shows the CPI data over the same period.

chart 2

In addition to Federal Reserve sources, the U.S. Department of Labor's Bureau of Labor Statistics gathers and publishes comprehensive data on inflation, employment, and unemployment.

Activity: The case of the ailing economy
When your students are ready, begin the class activity.

You are an economics detective working on a case called "The Case of the Ailing Economy." The primary question is: What do the current economic indicators tell us about the health of the economy?

As the Lead Economics Detective on the case, your charge is to conduct research and assess the variables that are integral to the health of the United States economy. After investigating key economic indicators such as real GDP, headline and core CPI, and the unemployment rate and then compiling your research, you should provide an answer to the primary question. Further, given your desire to advance to Chief Detective in the "Division of Economic Mysteries," you are committed to going beyond the call of duty. To do so, you must present your findings and assessment of current conditions with supporting evidence. You may submit your findings in a PowerPoint presentation, a written report, or on a poster board. To conduct your investigation, you can begin your research with the following sources of information:

Atlanta Fed research, blogs, podcasts, publications, and other information

Federal Reserve Board resources

Federal Reserve Bank of St. Louis

U.S. Bureau of Labor Statistics

By Jennifer Staley, economic and financial education specialist, New Orleans Branch

September 6 , 2011