Economics- bad teacher or dismal science?

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Economics- bad teacher or dismal science?

Postby orangeperson » Thu Nov 08, 2007 1:07 am UTC

I am a high school economics student.

I have a question about a question on my economics test. The question in question:

Workers in country A receive an increase in wages of 10 percent at the same time the inflation rate in country A is 8 percent. Workers in country B receive an increase in wages of 3 percent and the inflation rate in country B is 1 percent. In which country are workers better off?
a. Country A because their real wages rise by 18 percent.
b. Country A because their real wages rise by 10 percent.
c. Country B because the inflation rate is lower.
d. Neither country because the increase in real wages is the same.

I picked C, and here is my reasoning:

Country----------------------------------A-------------B
Original Wage------------------------$100--------$100
How much a microwave costs-----$100-------$100
Increase in Wage---------------------10%----------3%
Inflation---------------------------------8%------------1%
Final Wage-----------------------------$110--------$103
Final Cost of Microwave------------$108---------$101
How many m'waves buyable?----1+(2/108)---(1+2/101)


In both countries, your real wage goes up by $2. In country B, however, your $2 is worth more. I asked my teacher, and he said that he understood my reasoning, but in economics it is considered the same. He said it would be considered a "rounding error." He told me to stop using mathematics to hide the issue. He said that I have to get into "grad school" to learn about this. He said that since we were studying macroeconomics, we ignored it.

I wish I thought of suggesting that he move to 1920s Germany, and seeing how he likes having his huge wage increase then.

Am I right? Should I just drop the course because Economics is such a dismal science? Or am I not getting the point?

Also, I would appreciate a professional economist or something that I could email to clear this up, and maybe help my teacher get the point. I'm afraid that he's been teaching kids this for years and doesn't want to admit he's wrong.
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Re: Economics- bad teacher or dismal science?

Postby Gelsamel » Thu Nov 08, 2007 1:11 am UTC

I think the point is they want you to show your understanding of what you've learnt in class. Not the technicalities that most (if not all) lower level classes skip over.

Edit: And from what you've written it seems your teacher -does- get the point, he does know what you mean. Just that it doesn't matter in High School Econ.
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Re: Economics- bad teacher or dismal science?

Postby malarkie » Thu Nov 08, 2007 2:31 am UTC

Also economics is far from being a precise science.
Right now its all about the massive trends and theories about why they happen.
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Re: Economics- bad teacher or dismal science?

Postby Kizyr » Thu Nov 08, 2007 3:25 am UTC

orangeperson wrote:Am I right? Should I just drop the course because Economics is such a dismal science? Or am I not getting the point?

It's not that your teacher is bad or wrong. But, I'm not sure if "rounding errors" is much of an explanation (I think that may have been just avoiding a possibly long and confusing explanation). Also... economics is called the 'dismal science' because it tends to lend itself towards bringing up bad news. But that's beside the point.

orangeperson wrote:a. Country A because their real wages rise by 18 percent.
b. Country A because their real wages rise by 10 percent.
c. Country B because the inflation rate is lower.
d. Neither country because the increase in real wages is the same.
I picked C, and here is my reasoning:

Your reasoning isn't really that bad, but the illustrative example you chose there kind of overcomplicates it.

The basic idea is that the real increase in wages is 2% for both countries. Remember that the "real" part always means that the measure already accounts for inflation, the changing value of money/goods; so, if the real wage increase is the same, then the purchasing power is the same. No mathematics needed there.

...I spent like 10 minutes trying to figure out a way mathematically to display it, but there's not much of a way that makes intuitive sense. If I think of one, though, I'll try using it. In a way, I can see why your teacher might have wanted to avoid a long explanation. KF

(EDIT: Clarified this below. OP's reasoning I think is more correct than the "correct" answer on the test.)
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Re: Economics- bad teacher or dismal science?

Postby iop » Thu Nov 08, 2007 3:46 am UTC

You could claim that Economics is a dismal science because the mathematical side of it is way removed from reality, and because applied economics is always having trouble getting good data to work with (that's also why they push the advancement of statistics: Good economists have to correct for so many influences that it's not funny anymore).
Still, having a basic grasp of macroeconomics is a very good thing, so I suggest you keep taking the course.

As to your example: You can calculate the real wage increase based on last year's price index or based on this year's price index. In the first case, the increase for country A is (110-108)/100=2%, in the second case, it's (110-108)/108=1.85%. For country B, it's 1.98% in the second case. Depending on whether you're the employer or the employee, you're likely to want to use either last or the current year as reference.

In economics, you usually try to reference to a past year, which makes life much easier if you are comparing multiple years, so your teacher is correct. Yet, from the POV of the worker, he will be better off in country A (though C is still not the correct answer; you should have gone with "E-none of the above. Hasta la victoria siempre!").

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Re: Economics- bad teacher or dismal science?

Postby orangeperson » Thu Nov 08, 2007 4:22 am UTC

To avoid confusion, I'm going to refer to the time before the increase in wages and inflation as year one, and the time after as year two.

I'm sorry, but I just don't understand how someone in country A is better off. In country B you've earned the same amount of nominal dollars (by subtracting the inflation rate from the wage increase) but each nominal dollar is worth more than in country A.

Kizyr wrote:The basic idea is that the real increase in wages is 2% for both countries. Remember that the "real" part always means that the measure already accounts for inflation, the changing value of money/goods; so, if the real wage increase is the same, then the purchasing power is the same. No mathematics needed there.

There was no real part. If I understand correctly, "real" would mean that the figures would be adjusted for inflation. Let's put it in real terms now, for country A. Cost of microwave after a year would be $100, because it's adjusted for inflation. We find this by dividing by 1.08. The Final wage in first year dollars would be 101.85.
Now let's put it in real terms for country B. Once again, the microwave would cost $100, because it's been adjusted down for inflation. The wage in real terms would be 101.98 (first year dollars), which is obviously better than 101.85. The increase in real wages is NOT the same.

Think of the extreme case. My wages increase by 11%, and inflation in my country is only 1%. Your wages increase by 111%... but inflation in your country is 101%. I would say I'm better off.

iop- I don't quite understand your reasoning, and I think maybe you didn't understand mine. I don't really understand what you are doing, but my evidence that something is wrong is that you used the price of the microwave -- arbitrarily chosen by me to be easy for math -- in your equation. I could have said that the original price of a microwave was $101 dollars, in which case you would have said that the real wage increase was 1.98%.

Thanks and please help me understand.

P.S. Thanks for clearing up the dismal science bit.
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Re: Economics- bad teacher or dismal science?

Postby Yakk » Thu Nov 08, 2007 5:24 am UTC

So, the real value of money is:
X / (100%+inflation%)
which is rather close to:
X * (100%-inflation%)
for inflation% that is relatively near 0% (ie, small).

And
(100% + Z%) * (100% - inflation%)
is rather close to:
100% +Z%-inflation%
if either Z% or inflation% is close to 0% (ie, small).

This leads you to the statement that those two cases are quite similar in effect.

There are differences. If you have non-indexed wealth, inflation is bad. If you have non-indexed debt, then inflation is good.

Traditionally, however, more of the assets of the wealthy are inflation protected than the assets of the poorer people, which leads to inflation actually having a regressive effect on the economy.
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Re: Economics- bad teacher or dismal science?

Postby antonfire » Thu Nov 08, 2007 7:26 am UTC

Looks to me like the OP's reasoning is correct, and eir teacher fell into the trap of using linear approximations for everything. I had the same problem in my econ class in high school: I knew more math than the teacher. The trouble is not with economics, the trouble is that while economics is rather dependent on math, the people who end up teaching economics in high school don't know math that well, for whatever reason.
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Re: Economics- bad teacher or dismal science?

Postby scarletmanuka » Thu Nov 08, 2007 12:58 pm UTC

Here's a hint: convert 1+(2/108) and 1+(2/101) to a percentage increase, quoted to the nearest percentage point. Then tell me if there's a difference.

Remember that economics is not mathematics, where figures and answers are often assumed to be arbitrarily precise. If you're only getting the wage increase and inflation figures quoted to the nearest percentage point, there's no justification for claiming that the two cases are different; the assumed error in the figures swamps the difference between 110/108 and 103/101. So, in fact, your teacher is correct in claiming that these cases are the same.

Now, obviously if one example had a wage increase of 232% and inflation of 230%, it would not be correct to claim that that was the same as a wage increase of 3% and inflation of 1%, because the difference between 332/330 and 103/101 is quite a bit bigger. But for small numbers it is perfectly reasonable to apply the linear approximation, on the grounds that the error inherent in the figures is greater than the error in the linear approximation.

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Re: Economics- bad teacher or dismal science?

Postby iop » Thu Nov 08, 2007 1:56 pm UTC

iop- I don't quite understand your reasoning, and I think maybe you didn't understand mine. I don't really understand what you are doing, but my evidence that something is wrong is that you used the price of the microwave -- arbitrarily chosen by me to be easy for math -- in your equation. I could have said that the original price of a microwave was $101 dollars, in which case you would have said that the real wage increase was 1.98%.


I guess I should have described the equations better. Here's another try:

W1: wage in year one
W2: wage in year two.
R: raise (1.1 in country A, 1.03 in country B)
I: Inflation (1.08 in country A, 1.01 in country B)

W2=R*W1

The wage increases by
WageIncrease = W2-W1
Adjusting for inflation, the absolute increase of the wage becomes
WageIncreaseAdj = (W2-I*W1) = (R-I)*W1
How much is this in percent?
RelativeWageIncreaseAdj = (R-I)*W1/W1 = R-I
OR
RelativeWageIncreaseAdj = (R-I)*W1/(I*W1) = (R-I)/I < R-I; if I >1
You can calculate the relative wage increase by comparing it to W1 (first equation), or by comparing it to W1 adjusted for inflation (second equation).

Numerical evaluation gives
RWIA-1-A: 2%
RWIA-1-B: 2%
RWIA-2-A: 1.85%
RWIA-2-B: 1.98%

The first equation is often chosen for simplicity, since more people can do it in their head than they could do the second equation. Furthermore, for low values of inflation, there is not much difference. However, as you have shown in your example, the second equation better reflects the increase in purchasing power, which is what should be the criterion for checking who will end up being better off.
As I mentioned before, employers tend to use the first equation when advertising the raises they hand out.
Thus, your teacher is right in that the first equation is the one normally used. You are right in that the workers in country B are better off. You are wrong to choose answer C, because the correct answer would be "Country B, because their purchasing power increases more" or "Country B, because their real wages relative to the current year's price index increase 0.13% more", or something like that.

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Re: Economics- bad teacher or dismal science?

Postby Kizyr » Thu Nov 08, 2007 2:18 pm UTC

iop wrote:You could claim that Economics is a dismal science because the mathematical side of it is way removed from reality, and because applied economics is always having trouble getting good data to work with (that's also why they push the advancement of statistics: Good economists have to correct for so many influences that it's not funny anymore).

...that's still nothing to do with the reason that economics is called the "dismal science"; the "dismal" label arose entirely out of economists always being painted as pessimists, and how economics lends itself to suggesting some rather negative courses of action (e.g, 'cutting jobs can slow inflation'). Although, economists are some of the first people to make fun of their own profession.

orangeperson wrote:There was no real part. If I understand correctly, "real" would mean that the figures would be adjusted for inflation. Let's put it in real terms now, for country A. Cost of microwave after a year would be $100, because it's adjusted for inflation. We find this by dividing by 1.08. The Final wage in first year dollars would be 101.85.

The answer mentioned "real wages"; the word "real" is a part of the term "real wages". That's the real part I was referring to.

Anyway, I tried going through the question again a few different methods. One of which is through GDP deflators (these are measures that are used to adjust inflation--there are a lot of different deflators, but since this is a simple example, the different kinds are irrelevant). And... your reasoning is pretty much correct, although the answer might still be ambiguous.

So, say the EU has an inflation rate of 8%, while nominal wages rise 10% ("Country A"). If we use "Year 1" as the index year, then the deflator for Year 1 is 100, and for Year 2 is 108. So, a wage of €10000 increases to €11000, which is a real wage of €10185.19 (in Year1 Euros).

Say the US has an inflation rate of 1%, while nominal wages rise 3% ("Country B"). With the same setup as before, the deflator for Year 1 is 100, and for Year 2 is 101. So, a wage of $10000 increases to $10300, which is a real wage of $10198.02 (in Year1 Dollars).

For the EU, real wages have risen 1.85% relative to Year 1. For the US, real wages have risen 1.98% relative to Year 1. The US is slightly better off. The difference is really minor, though, and so if you use linear approximation then it's basically the same. Not to mention that in a more real-world scenario (i.e., dropping a few assumptions), the inflation rate--and hence the deflator--itself can adjust on account of the increase in wages, so the net effect is ambiguous. But, that kind of thing is outside of this illustrative example.

Basically:
antonfire wrote:Looks to me like the OP's reasoning is correct, and eir teacher fell into the trap of using linear approximations for everything.


Ultimately, this is why I don't like multiple-choice questions for economics. The reasoning is more important than the answer.

The answer I gave above is the simple rationale you'd probably use on a multiple-choice tests. The thing with multi-choice is that no question is really going to require that much of a thought process, unless proofs are involved. It's not the best answer, but it leads you to the best one of the choices given. KF
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Re: Economics- bad teacher or dismal science?

Postby iop » Thu Nov 08, 2007 4:13 pm UTC

Kizyr wrote:
iop wrote:You could claim that Economics is a dismal science because the mathematical side of it is way removed from reality, and because applied economics is always having trouble getting good data to work with (that's also why they push the advancement of statistics: Good economists have to correct for so many influences that it's not funny anymore).

...that's still nothing to do with the reason that economics is called the "dismal science"; the "dismal" label arose entirely out of economists always being painted as pessimists, and how economics lends itself to suggesting some rather negative courses of action (e.g, 'cutting jobs can slow inflation'). Although, economists are some of the first people to make fun of their own profession.

Indeed. Thanks!

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Re: Economics- bad teacher or dismal science?

Postby Indon » Thu Nov 08, 2007 5:39 pm UTC

I would argue that your teacher screwed up there. What he should have said was, "You show a good understanding of the material, but for the high school level we won't be going that in-depth". Instead he tried to skirt around it, as teachers can be prone to do when they find a student who is trying to demonstrate concepts beyond the scope of the class.
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Re: Economics- bad teacher or dismal science?

Postby Kizyr » Thu Nov 08, 2007 6:47 pm UTC

Indon wrote:I would argue that your teacher screwed up there. What he should have said was, "You show a good understanding of the material, but for the high school level we won't be going that in-depth". Instead he tried to skirt around it, as teachers can be prone to do when they find a student who is trying to demonstrate concepts beyond the scope of the class.

It's perhaps the equivalent of the "there are no negative numbers!" claim when they teach second-grade subtraction, and are trying to explain borrowing from the next place over (my second-grade teacher was actually really good about it, and just honestly explained that we'd be going over negative numbers in third grade, and why they weren't applicable at that time).

There was this one economics professor who used to give the same final exam every single year. One of the other professors in the humanities department told him this was a bad idea, saying "don't you realize that the students from the previous year are just going to hand the test to the students who take your course next year?"
The econ. professor says that it doesn't matter, "don't you realize this is economics? The questions might be the same, but the answers change every year."

That was in the opening of one of my intermediate-level econ. textbooks. KF
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Re: Economics- bad teacher or dismal science?

Postby orangeperson » Thu Nov 08, 2007 8:37 pm UTC

Today he used the example of a 112% wage increase with 110% inflation and a 102% wage increase with 100% inflation. The increase payment to the first workers will be worth 10% less. (I think) that's pretty significant. If he didn't have the option c on there, then I would be willing to accept it. But answer C is better in every way than D.

I had another mathematical gripe with him on the test. This was the question:
If the population increase in India is smaller than the increase in Indian real GDP, then GDP per capita will
a. decrease
b. increase
c. remain constant
d. increase more slowly than the real GDP.

I went up to him and asked him if "increase" will always be positive. He told me it doesn't matter, and I tried to explain that it does, and he basically told me that he didn't think the answer was (d), so I chose (b) and he marked it right.
However, I think that (d) is correct. If the increase in population and real GDP is positive, GDP per capita will increase more slowly than real GDP. The only way to have GDP per capita increase faster than real gdp would be to have negative population growth.

Also, we have this thing we do where we go to the computer room and trade items to demonstrate economic principles. Half the kids are assigned buyer and are given a buyer value(how much the item is worth to them), and half are assigned seller and are given a seller value(how much they have to sell for to make a profit). Everybody is allowed to sell/buy one thing each round. The aggregate gain for the round therefore is how much above the seller value the sellers sold for, and how much below the buyer values the buyers bought for. He couldn't accept that if all the buyers buy and all the sellers sell, there is no way the aggregate gain can change.

Just a general question about economics: "GDP per capita is the best measure of an economy's standard of living." This was on the test (standard of living was the correct way to complete the sentence, and I chose productivity). I've heard conflicting views on this. I believe France has a lower GDP per capita than the United States, but it could easily be argued that they have a better standard of living- more health care, less work hours, more vacation. GDP per capita seems like a very good measure of productivity, however.
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Re: Economics- bad teacher or dismal science?

Postby Yakk » Thu Nov 08, 2007 8:45 pm UTC

GDP, as measured by economists in the real world, typically leaves out non-commercial transactions, and non-transaction valued options.

A concrete example I can come up with was the former Soviet Republic of Georgia. The GDP measures took into account things that traded hands traditionally.

The problem was twofold. First, it ignored "in family" production: a mostly self-sufficient farm that made their own boots, grew their own food, and cut their own lumber would only show up in their purchases and sales with the outside world.

The "internal economy" didn't show up -- the production of leather, the production of boots, and the consumption of the self-made boots. And in a more "primitive" economy with less specialization that kind of "trade" is more important.

This seemingly academic concern had two serious applied problems.

First, changes in the economy that actually made the people worse off (by reducing the real GDP) could show up as an increase in measured GDP! Second, when trying to work out how wealthy the nation is, the value would be underestimated, resulting in higher interest rates and lower amounts of money that could be borrowed.

... Hmm. I should send this to my old economics teacher. He's always on the lookout for good stories. :) (and the fact that it is true is even better!)
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Re: Economics- bad teacher or dismal science?

Postby iop » Thu Nov 08, 2007 9:06 pm UTC

orangeperson wrote:If he didn't have the option c on there, then I would be willing to accept it. But answer C is better in every way than D.

Except that C is not correct, either, and D can be correct in the context of what you were taught.

I had another mathematical gripe with him on the test. [...]

You are right.

He couldn't accept that if all the buyers buy and all the sellers sell, there is no way the aggregate gain can change.

As long as the value of the goods stay constant, you are right given the conditions you stated.

Just a general question about economics: "GDP per capita is the best measure of an economy's standard of living." This was on the test (standard of living was the correct way to complete the sentence, and I chose productivity). I've heard conflicting views on this. I believe France has a lower GDP per capita than the United States, but it could easily be argued that they have a better standard of living- more health care, less work hours, more vacation. GDP per capita seems like a very good measure of productivity, however.

In economics, it is usually assumed that the goal is to maximize GDP, since it is implicitly assumed that a higher GDP will translate to a higher standard of living. If everyone, on average, in country A makes the double of everyone, on average, in country B, and if they aren't total dimwits, they'll buy themselves a nicer standard of living. There is a relation between standard of living and GDP, but it is definitely not 1:1.
GDP per capita could be used to compare productivity between countries that exclusively manufacture the same good. However, if both of the countries are selling natural resources, the ones chopping wood may be extremely productive, though the ones drilling for oil will still win out, for example.

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Re: Economics- bad teacher or dismal science?

Postby orangeperson » Thu Nov 08, 2007 10:11 pm UTC

iop wrote:"Country B, because their purchasing power increases more"


iop wrote:Except that C is not correct, either, and D can be correct in the context of what you were taught.


The inflation being lower means the price of their goods will increase less, which means their purchasing power increase more. Thus, answer C is correct. That is what I was taught. I wasn't taught to ignore that goods cost more.
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Re: Economics- bad teacher or dismal science?

Postby iop » Thu Nov 08, 2007 11:02 pm UTC

If the difference between the relative wage increase and inflation is the same for two countries, then the workers will be better off in the country where inflation is lower.
-- correct
If the difference between the relative wage increase and inflation is the same for two countries, then the workers will be better off in the country where the relative wage increase is lower.
-- correct

The second half of then sentence is only true because the condition is satisfied. In the multiple choice tests I was taking, the main clauses alone were considered as the wrong (because incomplete) explanation. Your tests may be different.
Actually, I think the teacher intended to test for whether people were able to calculate a real wage increase as R-I (which I guess is what you have been taught). C was supposed to be one of the traps for students who didn't think very far. As it turned out, the trap bit the teacher in the ass.

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Re: Economics- bad teacher or dismal science?

Postby orangeperson » Thu Nov 08, 2007 11:18 pm UTC

I see what you mean, but I think that my experience with multiple choice tests must have been crummy. To explain why I think C is an acceptable choice, I'll go through my thought process when I saw this question. At first, I thought "A and B are the same, because their wage increases are both 2% above the inflation rate." Then, I thought "Ah, but in country B there's less inflation, so the 2% counts for more." Therefore, I chose (c) Country B because the inflation rate is lower.

Your explanation for answer choice c makes sense.
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Re: Economics- bad teacher or dismal science?

Postby Kizyr » Fri Nov 09, 2007 1:05 am UTC

orangeperson wrote:I went up to him and asked him if "increase" will always be positive. He told me it doesn't matter, and I tried to explain that it does, and he basically told me that he didn't think the answer was (d), so I chose (b) and he marked it right.
However, I think that (d) is correct. If the increase in population and real GDP is positive, GDP per capita will increase more slowly than real GDP. The only way to have GDP per capita increase faster than real gdp would be to have negative population growth.

Ok this might be a trickier case (and, I might add, the question is rather poorly-worded for having an answer like 'd' on there). Any time you see two answers that might be correct, you'd need to ask yourself if one will be correct 100% of the time. Your intuition that both increases would need to be positive is on the right track, though.

Basically, the only parameter of the question is that
(% increase in rGDP) > (% increase in population);
the (% increase in population) can be 0%, in which case the (% increase in rGDP) at any positive value will be greater. In that situation,
(% increase in rGDP) = (% increase in per-capita GDP).

Since he said "it doesn't matter", I'd take that to mean that the more general answer--B--is the most correct one.

orangeperson wrote:Just a general question about economics: "GDP per capita is the best measure of an economy's standard of living." This was on the test (standard of living was the correct way to complete the sentence, and I chose productivity). I've heard conflicting views on this. I believe France has a lower GDP per capita than the United States, but it could easily be argued that they have a better standard of living- more health care, less work hours, more vacation. GDP per capita seems like a very good measure of productivity, however.

Personally, I prefer one of two measures for "standard of living": per-capita GDP adjusted for purchasing power parity, and the human development index (http://en.wikipedia.org/wiki/Human_Development_Index), which weights indexed values for per-capita GDP, literacy, school enrollment, and life expectancy. Of course there are scores of other numbers that are good for getting at different quality-of-life aspects.

Oh, Big Mac Index-adjusted per-capita wages are also a pretty good measure.

GDP itself isn't really a measure of productivity--that's something that's more captured by things like the rate of growth, rate of increase in real wages, that kind of thing. I'd have to see the other answers there, but standard of living might very well have been the best answer of the choices available. KF
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orangeperson
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Re: Economics- bad teacher or dismal science?

Postby orangeperson » Fri Nov 09, 2007 1:30 am UTC

First bit:
The first thing I asked him was whether the increase was positive, and he said yes. If the increase of population is positive and less than increase in GDP, then GDP per capita will increase more slowly than real GDP. I just said B because he said whether it was positive didn't matter, which I knew was wrong, but I didn't bother to argue and just circled the answer he had on his answer key.
I've found that you can't use the logic to rule out D because B is necessary for it to be true, because many teachers will argue that D is "more correct".

Second bit:
The question was as follows:
GDP per capita is the best measure of an economy's
a. size
b. standard of living
c. productivity
d. population

None of the answers seemed to fit, but I knew least about productivity not fitting, so I chose that. Perhaps the question would should have read "GDP per capita is best used as a measure of an economy's...." I'm very willing to believe that I'm wrong on this one.
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Re: Economics- bad teacher or dismal science?

Postby saus » Fri Nov 09, 2007 3:45 am UTC

Sorry if someone already said this, but I don't want to read pages about boring economics.

The answer I got to the first question was D.

The estimation they used in my AP Econ textbook in high school was: nominal $ - inflation rate = real $. Of course it isn't right, but it's the estimation they use for a basic conceptual understanding of economics.

The India question:
GDP is increasing slower than population, per capita GDP decreases.
GDP = per capita GDP
population

Maybe a mathy appearance will help:
G/p=c
G*1.05/p*1.05=c
G*1.05/p*10.5=c/10
If G increased by 5% and p increased by 950%, per capita GDP is 10 times smaller, it decreased.


Last one, per capita GDP measures standard of living. If each person has more junk, they have a better standard of living.


This level of economics is mostly common sense. Use your common sense instead of logic or math. When a problem calls for math, use simple arithmetic. Leave your advanced math outside when you enter your econ class. Increases are always positive. Remember, this is sometimes(maybe often or always?) categorized as a social science.

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Re: Economics- bad teacher or dismal science?

Postby Kizyr » Fri Nov 09, 2007 4:21 am UTC

saus wrote:Sorry if someone already said this, but I don't want to read pages about boring economics.

The first and last answers were already explained above.

The "India question" was already explained, also. The 'increases are always positive' part doesn't apply here--you can check back two posts to see my reasoning on that, given what the guy's teacher explained.

saus wrote:This level of economics is mostly common sense. Use your common sense instead of logic or math. When a problem calls for math, use simple arithmetic.

Quoted for partial emphasis. Any arithmetic should be simple if used at all--it's not until college level that a mathematical foundation to everything is really necessary. Logic, however, should still be there. Economics is about making logical conclusions from one thing to the next; the most important thing to learning anything in economics is to have a good sense of logic.

orange wrote:None of the answers seemed to fit, but I knew least about productivity not fitting, so I chose that. Perhaps the question would should have read "GDP per capita is best used as a measure of an economy's...." I'm very willing to believe that I'm wrong on this one.

Of those answers, standard of living was definitely the most correct one.

It only comes down to D and B (as you said). But, productivity is something that applies to the country-wide level. GDP itself is more of a measure of that (more precisely, rate of growth in real GDP), but GDP-per-capita is not.

There are problems with per-cap-GDP as a standard-of-living measure: it ignores distribution of wealth; it's not really income, but it's often interpreted as such; it ignores certain aspects of the economy (Yakk's Georgia example = perfect); it ignores the availability of resources, etc. But, if I'm looking at demographic data, the first two things I'm going to look at to get a sense of what the country's standard of living is like are the GDP-per-capita, and the infant mortality rate. KF
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Re: Economics- bad teacher or dismal science?

Postby philvo » Fri Nov 09, 2007 4:41 am UTC

Workers in country A receive an increase in wages of 10 percent at the same time the inflation rate in country A is 8 percent. Workers in country B receive an increase in wages of 3 percent and the inflation rate in country B is 1 percent. In which country are workers better off?
a. Country A because their real wages rise by 18 percent.
b. Country A because their real wages rise by 10 percent.
c. Country B because the inflation rate is lower.
d. Neither country because the increase in real wages is the same.


What if instead of dollars you used percentage?

Country-------------------------------A------------B
Original Wage------------------------100%--------100%
How much a microwave costs---------100%--------100% *percent of wage that it requires*
Increase in Wage---------------------10%----------3%
Inflation-------------------------------8%----------1%
Final Wage---------------------------110%--------103%
Final Cost of Microwave---------------108%--------101% *percent of original wage that was required*
How many m'waves buyable?----------1+(2%)---1+(2%) *2% of wage left over in both cases.*


If you must go into such depth (too bad it's macroeconomics), workers in Country A will substitute and buy the microwave in Country B. In the short run the value of the currency will be roughly the same. This is also a basic economics course so I imply the effects of tariffs and other costs have not been covered too much yet. Basically the worker in Country A will be better off with this argument?

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Re: Economics- bad teacher or dismal science?

Postby rflrob » Fri Nov 09, 2007 8:01 am UTC

Kizyr wrote:Quoted for partial emphasis. Any arithmetic should be simple if used at all--it's not until college level that a mathematical foundation to everything is really necessary. Logic, however, should still be there. Economics is about making logical conclusions from one thing to the next; the most important thing to learning anything in economics is to have a good sense of logic.


This is what's always annoyed me about economics... The hesitancy to use math. Even in college econ, they often treat algebra with kid gloves, and avoid calculus whenever possible. As a physicist, I feel like mathematics is a natural way to describe the world, and it irritates me to no end when people could use it, but don't. Logic and intuition is important in physics too, but you don't often see physics taught as a near total reliance on qualitative results.

"The only function of economic forecasting is to make astrology look respectable."
-- John Kenneth Galbraith

"Economists state their GNP growth projections to the nearest tenth of a percentage point to prove they have a sense of humor."
-- Edgar R. Fiedler
Ten is approximately infinity (It's very large)
Ten is approximately zero (It's very small)

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Re: Economics- bad teacher or dismal science?

Postby orangeperson » Fri Nov 09, 2007 11:42 am UTC

Thanks for the advice. I'll try to stay away from multiplication or division, or any higher reasoning than that of an eight year old.

rflrob's signature wrote:Ten is approximately infinity (It's very large)
Ten is approximately zero (It's very small)

Sounds good to me.
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Re: Economics- bad teacher or dismal science?

Postby iop » Fri Nov 09, 2007 2:49 pm UTC

rflrob wrote:This is what's always annoyed me about economics... The hesitancy to use math. Even in college econ, they often treat algebra with kid gloves, and avoid calculus whenever possible.

The problem is not economics. Especially in statistics, but also in other fields, economics has actually been driving math for the last few decades.
The problem is that the classes you went to was probably econ for MBAs. Some of the students there chose to go toward business because they were never good in science and math, so the teacher has the choice between either failing 90% of the people or explaining stuff in a way they're going to understand. Interestingly, even a physicist can understand the qualitative explanation.

orangeperson wrote:Thanks for the advice. I'll try to stay away from multiplication or division, or any higher reasoning than that of an eight year old.

Or just be very careful in figuring out what the test asks for. You may even write an explanation such as "I choose D because that's what you think is right, even though it's actually wrong". In other words, you have the choice between doing less reasoning, or more reasoning. You're smart, so I suggest the latter.

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Re: Economics- bad teacher or dismal science?

Postby nilkemorya » Fri Nov 09, 2007 4:56 pm UTC

I'm coming a bit late in the thread(took a while to read it all) but I have a couple of shots. 1) I bet mathematical physics has been driving more than economics, but it's hard to be sure. 2) Any teacher who would ignore that higher level of reasoning, and tell a student "Stop using mathematics to hide the issue" right...that's just a terrible teacher. If a student comes to you with solid reasoning to back up an answer on a test, you don't say "You're wrong because you're too good for this class" you encourage them dammit. I hate it when teachers do this. And secondly, what the heck kind of question is ..."better off?" How do you define better off? "In which country do the workers get more real pay?" Sure, no problem. "In which country is the workers paycheck worth more?" Also no problem. But better off? The man should learn how to write non-ambiguous test questions before telling a student not to hide the issue with math.

Grr...sorry, this kind of teaching just bothers me. I've seen it turn way to many good and bright students off of subjects.
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Re: Economics- bad teacher or dismal science?

Postby Kizyr » Fri Nov 09, 2007 5:56 pm UTC

orangeperson wrote:Thanks for the advice. I'll try to stay away from multiplication or division, or any higher reasoning than that of an eight year old.

Gah! Please don't give up higher reasoning like that. I really hope this doesn't turn you off of economics to begin with. It might not really be your thing in the end, but there are a lot of aspects that are pretty fascinating. Plus, the theories you do learn (well, the correct ones) do have their foundations in both mathematical and logical principles.

All through studying economics myself, making illustrative examples (like what you're doing) is how I got to understand most of the concepts. But, most of my experience was at the college level, and designed for economics students; not at the high school level (even then, I had one HS econ. course that was pretty fun, and which encouraged me to go on to major in it).

Basically:
iop wrote:Or just be very careful in figuring out what the test asks for. You may even write an explanation such as "I choose D because that's what you think is right, even though it's actually wrong". In other words, you have the choice between doing less reasoning, or more reasoning. You're smart, so I suggest the latter.

Quoted for more emphasis. This is the kind of thing you need to deal with for multiple-choice tests.

nilkemorya wrote:And secondly, what the heck kind of question is ..."better off?" How do you define better off? "In which country do the workers get more real pay?" Sure, no problem. "In which country is the workers paycheck worth more?" Also no problem. But better off? The man should learn how to write non-ambiguous test questions before telling a student not to hide the issue with math.

"Better off" is pretty simple a term if you just understand it within the context of the question. The only factors in the question was wages and inflation, so, real wages is the only thing applicable to being "better off". If you wanted to really make it unambiguous, you could put "better off with respect to real wages, holding all other things outside the scope of this question equal", but the latter part of that is implicit since it's just a multiple choice question.

However, "hiding the issue with math" is still a completely silly excuse.

EDIT: Something else just occurred to me. I've never seen any situation where it made sense to compare the rate of population growth with the rate of per-capita income growth. The two rates have such different implicates that a comparison between the two makes absolutely no sense. Just another reason why including answer D there makes no sense. KF
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Re: Economics- bad teacher or dismal science?

Postby iop » Fri Nov 09, 2007 7:19 pm UTC

nilkemorya wrote:I'm coming a bit late in the thread(took a while to read it all) but I have a couple of shots. 1) I bet mathematical physics has been driving more than economics, but it's hard to be sure.

That may be true for several areas of math, but for statistics, I doubt it very much. Also, game theory, and time series analysis (for both, there was a Nobel price in economics) have been pushed a lot by economists (read: mathematicians-turned-economists), since their problems were needing much more powerful tools than what had been developed for physics.


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