Educational Technology RWLO Template Title Placeholder



You are an economic entity!

(… Or how you spend makes a difference for others!)

Project Overview

This project is designed to help students see how the money they spend supports and grows the economic system they are participating in. The US economic system is based on the premise that wealth (income) is created by participants spending what they have as income on things they need and want. This activity in turn supports those who are selling them those things, who then buy what they want, and so on.

The Chain of Wealth Creation is a critical part of what makes free market capitalist systems work for their populations. Understanding this system helps students appreciate their own role in the system as well as helping them value their contribution in new and different ways.

The fundamental principal in the Chain of Wealth Creation is best described by the old game where we used to pass a dollar around a classroom, lending it over and over to make the point of how many dollars can be created in an economy by this activity. Economists estimate that for every dollar we spend we generate 5 to 7 dollars in a ripple effect … or new wealth creation.

Student Learning Objectives

For this RWLO, the student will be able to:

• Use basic math skills to discover how much the student spends in a year and find their “economic value”

• Use the Internet to look up a current summary of the US Gross Domestic Product (GDP)

• Use the Internet to look up the current average income of an American worker

• Measure the percent of the “economic value” of the student compared to the GDP (a very low percentage!)

• Measure the number of workers the average student supports with their “economic value”

Procedure

Time: Approximately 15 minutes

Materials: A computer with internet access, a calculator, the Economic Value Worksheet, and a pencil

Prerequisites: Basic arithmetic and calculator skills

Implementation: This RWLO can be used either in the classroom to illustrate an economic lesson or at home as an online/take-home assignment

Steps: Have students do the following steps …

1. Using the worksheet, add up your total spending for a year.

2. Multiply that number by 5 to get your “economic value” based on the Chain of Wealth concept.

3. Go to the web site for the Bureau of Economic Analysis at the US Department of commerce and look up the most current Gross Domestic Product (GDP) for the United States. (this is found by first clicking on the Bureau of Economic Analysis link then click on the Gross Domestic Product link on their home page and then on the link to Current-dollar and "real" GDP, XLS link).

4. Divide your “economic value” by the most recent year for which the GDP is listed (use Current Dollars number). This will probably produce a VERY small percentage of about .0000005%.

5. Now look up the average earnings of an American worker by going to and finding the “average income level” for the middle of the states earners (this is called the middle fifth in the summary).

6. Take Home Message for Exercise: Take your “economic value” and see how many jobs it will support at the income level you found above. I bet students will be surprised. Even though their ”economic value” seemed small as compared to the whole nation they mean a lot to the people with the jobs they support!

Content Material

You are an economic entity and a driving force in the economy! No kidding! (

Did you ever wonder what all those figures mean on the news when they talk about the shape of the economy and how well we are doing as a nation in keeping people employed? They are talking about you! Let’s start with some definitions (from Merriam-Webster Online Dictionary):

Economic:

1 archaic : of or relating to a household or its management

2 a : of or relating to economics b : of, relating to, or based on the production, distribution, and consumption of goods and services c : of or relating to an economy

3 : having practical or industrial significance or uses : affecting material resources

(edited for this application)

Bottom of Form 0

So, economic is having to do with the flows of wealth and money in a system where trade in return for cash (or its plastic equivalent!) is the primary means of doing business. Note that the definition also mentions how material resources are effected by economic activities. For example, your car has an effect on your life by letting you go to work, visit friends, or go shopping. Without a car life would be different and less convenient. This means that your car has a material effect on your life. And lets remember that you paid for (or are paying for) that material effect in the form of car payments. Let’s do another word:

Entity: noun

Inflected Form(s): plural -ties

Etymology: Medieval Latin entitas, from Latin ent-, ens existing thing, from coined present participle of esse to be. Date: 1596

1 a : Being, Existence: independent, separate, or self-contained existence b : the existence of a thing as contrasted with its attributes

2 : something that has separate and distinct existence and objective or conceptual reality

Well, here we see you in the picture. You are an entity. You live separate, self-directed existences. You are your own person. You make your own decisions for the most part. So you are an entity with your own unique concept of reality and the world around you. In addition you have your own set of unique needs. These include clothing styles, hair styles, food preferences, transportation preferences, living space preferences, medical needs, and a host of other perspectives that

make you the unique person that you are. We all live different lives to some extent even if we do conform now and then to the social expectations around us. If we did not have these preferences there would be no need for marketing! We would just all wear clothes from a state owned store and look the same. Yuck!

Now let’s add back in the economic part; economic entity. You pay for all that self-directed life we talked about in the paragraph above don’t you? Then again, so does everyone else around us! It costs money to maintain your material resources and life style doesn’t it? So we work. We trade the one thing we have as a natural result of our being born (our life energy) to some company who gets us to do their work. The pay us in dollars and we spend those dollars to support our life styles. The entire economy in which we live is based on this simple trade: we trade our energy (and talent) for money which we use to buy what makes us happy and helps us live comfortable lives.

Now let’s do a little exercise:

Economic Value Worksheet: List all the expenses you pay out in a month –

Car payment _______ Clothing expenses _______

Rent payment _______ Credit card payment _______

Food expenses _______ Other expenses _______

Entertainment expenses _______ Total monthly expenses _______

I know this is a short list but I just want to make a point about your economic value. Now multiply your final number by 12. That is your annual contribution to the economy. This is the money you spend that becomes the income and investment capital for the people and companies you do business with. If you like, to save time, just use your adjusted gross income figure from your Federal Tax form for last year.

The Chain of Wealth multiplier: Just as your income comes from your company’s customers so does everyone else’s. Want to know how many of your fellow workers you support? Just multiply your annual figure by five (5). Economists say that number is the economic effect of the money you circulate as player in the economy. It is based on the understanding that as money passes through the economy it creates wealth in its wake … much as a boat leaves a wake as it moves through the water that is much larger than the boat alone. The “economic wake” is in terms of goods and services bought and the standards of living that were raised as folks got jobs.

My economic value is $_______________.

This number becomes part of what is called the GDP (or Gross Domestic Product) of the United States. Go out on the web and look up the GDP for last year. It can be found at . Click on the Gross Domestic Product link and then on the Current-dollar and “Real” GDP section). Use the Current Dollar GDP number for this exercise.

What is the most current number you see for GDP? __________________

(Remember that this number shown is in billions of dollars so add eight zeros to the number!) Wow! That is a lot of money!

Now divide your Economic Value from before by the GDP number you found at the government web site. This is the percentage of your contribution to the US economic system. Congratulations! You are an economic player!

Although you may be a small one … (

Now let’s look on the brighter side. Click on

and find the average income of the “middle fifth” of the population in your state or region. It is listed about halfway down the page after you click on a state or region.

Compare that income level with your “economic value” and see how many middle income jobs you can support by dividing your economic value by the amount of an average salary. I bet you will be surprised! You are a player after all and those people you support probably appreciate you a great deal! (

Referenced URLs:

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Assessment

Economic Entity Quiz

1. GDP stands for:

a. General Demand Principals

b. Gross Domestic Product

c. General Dynamic Processes

d. Great Dollar Perceptions

Answer: b

2. The Bureau of Economic Analysis is a source for:

a. US economic statistics

b. Global economic information

c. Congressional policy decisions

d. Household ownership information in the US

Answer: a

3. An “Economic Entity” is:

a. A government classification of a law

b. Aliens from Planet Econ

c. Any person who spends money in an economy

d. A machine designed to print money

Answer: c

4. The “multiplier effect” is:

a. The expansion of a country's money supply that results from personal spending

b. A movie special effect

c. A tool for an Economist to predict the wealth of a country

d. A and C

Answer: d

5. The “current average income” amount means:

a. This is what you can expect to earn when you graduate

b. Most people earn this much

c. Half the people earn more and half earn less than this amount

d. This is a figure the government tries to get everyone to earn

Answer: c

Discussion Question: Write a 250 word essay about what you think about this exercise and any questions you may have about the topic we just discussed.  Include how this exercise has changed the way you look at money and your place in the US economy. Include all your research findings and math work. Answer the questions fully from the worksheet.

Discussion Question Grading Rubric

10 Point Grading Scale

|Objectives |Low Performance |Good Performance | |Earned |

| | | | |Points |

|Upon completion of these activities, the |0 points |2 points | |[pic] |

|student will be able to: Use basic math skills |Student is not able or does not |Student perform the math required| | |

|to discover how much the student spends in a |perform the math required. |and interpret the % from their | | |

|year and find their “economic value” by | |calculator. | | |

|dividing their economic value by the GDP | | | | |

|Upon completion of these activities, the |0 points |2 points | |[pic] |

|student will be able to: define their role in |Student in unable to determine |Student recognizes and | | |

|the economy and provide evidence to back up |point of view. |distinguishes point of view. | | |

|their point of view | | | | |

|Upon completion of these activities, the |0 points |2 points | |[pic] |

|student will be able to: define how his/her |Student is unable to define how |Student is able to define how | | |

|participation in the economy effects the lives |his/her participation in the |his/her participation in the | | |

|and jobs of others. |economy effects the lives and |economy effects the lives and | | |

| |jobs of others. |jobs of others. | | |

|Upon completion of these activities, the |0 points |2 points | |[pic] |

|student will be able to: recognize and use |Student is unable to distinguish |Student is able to distinguish | | |

|credible sources online. |and use credible sources online. |and use credible sources online. | | |

|Upon completion of these activities, the |0 points |2 points | |[pic] Score:|

|student will be able to write a summary. |Student writes a summary, but |Student is able to write a | | |

| |does not capture the essential |summary that contains the | | |

| |information. |essential information. | | |

Links to Course Competencies

This RWLO could be applied in the following courses: Introduction to Economics, Introduction to Business, Internet Skills Courses, Introduction to Financial Planning, and others. Specifically, this RWLO meets the following course competencies:

• Define common terminology used in economics.

• Describe the structure and trend of the U.S. Gross Domestic Product.

• Describe basic “multiplier effect” principles of major economic systems.

• Describe basic economic concepts and how the concepts relate to monetary policy.

• Demonstrate proficiency in common arithmetic operations with whole numbers, fractions, and decimals.

Supplementary Resources

• Wikipedia is an open source cyber community based listing of definitions and articles about over 750.000 topics.

• A fun demonstration of the effect for classroom use:

• Honda Motors in Ohio has a wonderful explanation of their plant’s economic impact on the economy which discusses the income and jobs multiplier effect in a very visual and interesting way. See: to view the presentation. This is a short (5 minute), well done web piece students will relate to as it covers motorcycles and current hot vehicles like the Honda Element.

• This site talks about the “lending” multiplier effect and its importance to the US money supply and bank lending:

• This is an interesting International Article about how taxes negate the multiplier effect (from India – The Hindu Business Line):

• This is an International article from Britain about how government spending creates a multiplier effect also. (Note: the effect is much smaller than the effect of personal spending because of the source of the funds they are spending – taxes. When a government takes taxes it partially kills the multiplier effect and so government spending has less of an impact than a person’s spending. This was a basis for the theory of Reganomics in the 1980’s.) This web site is a wonderful compendium of information about the workings of economies and the results of government policy and is well worth surfing.

• Use to search for: “spending/income multiplier effect”. There are many sites and explanations available.

Recommendations

Recommendations for Integration:

In an online setting: Use as a graded assignment where students learn by doing the research and summarizing the material they find

In a classroom setting: Works great as an interactive exercise with students sharing the load of looking up information and definitions on computers, others doing the math and others interpreting the outcome. Works well as a “think-pair-share” exercise. Students especially relate to the “dollar spending” exercise described below.

Back-up:

If an instructor looks up the basic numbers before class (and prints out the web pages from the sites listed) they have all they need to run the simulation on a white board. The concept is simple and students can get the take home message through a “dollar spent” exercise in the class. (Prof buys a notebook from a student for a dollar … then that student buys a pen from another student for a dollar … and so on until you reach $5 in value (real cash or product value) in the room. Both are measures of wealth. Remember to get your dollar back!)

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