1. Jeffrey Timmermans
Global Financial Journalism
Week 12: Wrap-up & Intro to Economic Journalism
Thursday, 2 May, 13

2. What is economics?
Thursday, 2 May, 13

3. One answer:
“Economics is a study of mankind
in the ordinary business of life.”
- Alfred Marshall, Principals of Economics
Thursday, 2 May, 13

4. Another answer...
✤ The study of how people deal with scarcity
✤ Nothing is available in unlimited quantities
✤ This requires making choices, making trade-offs
Thursday, 2 May, 13

5. Economic choices
✤ Which product/service to choose?
✤ What other products/services to forego?
✤ Which choice will make us happiest?
✤ Classical economists assume people make these choices rationally
✤ People will act to maximize their well-being
✤ But aren’t always rational (according to behavioral economists)
Thursday, 2 May, 13

6. Factors that affect those choices
✤ Supply & Demand (markets)
✤ Incentives (from businesses & governments)
Thursday, 2 May, 13

7. Incentives
✤ People’s choices are affected by incentives
✤ “Half-price!”, “Three for the price of two!”
✤ Smoking indoors – or cursing – could result in a fine
✤ Incentives don’t have to be monetary
✤ Wearing a helmet when riding a motorcycle
✤ Reduces the bodily “cost” of an accident
Thursday, 2 May, 13

8. Incentives & their (unintended)
consequences
Thursday, 2 May, 13

9. Traffic accident deaths
0
2
4
6
8
1985 1987 1989 1991 1993 1995 1997 1999
Helmet law
enacted% of total
accidents
Source: Maryland Dept. of Transportation
Thursday, 2 May, 13

10. Course topics
✤ How economies function
✤ How to measure economies
✤ How governments manage economies
✤ How banks function
✤ Some of the major trends in economic thought
✤ And, how to write about all these things
Thursday, 2 May, 13

11. Supply &
Demand
✤ Demand is based on the
value consumers attach to
goods & services as well as
their income & substitute
goods
✤ Supply is determined by
suppliers’ costs
✤ The market price is a
summary of the supply &
demand in the market
Price
Quantity
Demand
Supply
Market
Price
{
New
Demand
New Price
Add’l
Suppliers
Thursday, 2 May, 13

12. What kind of product is this?
Price
Quantity
Demand
Supply
Market
Price
New Price
Q2
Q1
New Price
Thursday, 2 May, 13

13. Types of economies
Command
Economy
Free-market
Economy
No gov’t
intervention
Total
intervention
N.Korea
Sweden
U.S.
HongKongThursday, 2 May, 13

14. Circular Flow Model
Thursday, 2 May, 13

15. Circular Flow with Savings
Thursday, 2 May, 13

16. Circular Flow with Inventory
Thursday, 2 May, 13

17. The Business Cycle
Real output
Time
Trend line
Recession
Recession
Recession
Recovery
Recovery
Trough
Peak
Thursday, 2 May, 13

18. U.S. Economic Growth
(1940-2010)
Source: St. Louis Federal Reserve Bank
Thursday, 2 May, 13

19. U.S. Business Cycle (1970-1980)
Source: St. Louis Federal Reserve Bank
Thursday, 2 May, 13

20. Why do economies grow over
time?
✤ Population growth
✤ Investment
✤ Accumulated knowledge
✤ Improved productivity
✤ Better technology
Thursday, 2 May, 13

21. Economic goals of governments
✤ Full employment
✤ or at least as full as possible...
✤ Steady annual growth in output
✤ without overheating
✤ Stable prices (low but steady rise in inflation)
Thursday, 2 May, 13

22. Measuring economic performance
✤ Output of goods & services
✤ Changes in prices for goods &
services over time
✤ Mood of consumers
✤ Employment
✤ Total supply of money
✤ Trade with other countries
✤ Productivity of workers
Thursday, 2 May, 13

23. Major economic indicators
✤ Gross Domestic Product (GDP)
✤ measures output, not wealth nor well-being
✤ Consumer Price Index
✤ measures how prices change (e.g. inflation)
✤ Unemployment
✤ Money Supply
Thursday, 2 May, 13

24. The Economic/Regulatory Cycle
Crisis in un- or under-
regulated area
Politicians respond to
people’s anger
Lobbyists/companies
seek deregulation
Politicians respond to
companies
Economic stimulus &
increased regulation
Fiscal/monetary
tightening,
deregulation
Recession
Growth
Thursday, 2 May, 13

25. Remember...
✤ Journalists can provide perspective and context:
✤ A recession isn’t the end of the world
✤ A growth & recovery phase won’t go on forever
✤ This time isn’t different!
✤ Regulatory response isn’t always appropriate and is influenced by
political considerations
Thursday, 2 May, 13