Talk like an economist

Economics has its own language. In general, I have mixed feelings about jargon. It’s nice to have subject-specific terms that convey a very particular meaning. But jargon also makes things unnecessarily complex.

Either way, jargon is part of economics. And students are expected to understand and apply key economic terms in their written responses. Though it’s not easy. 

I mean, many students get a handle on expansionary/contractionary okay. How about fiscal or monetary easing? What about inflation targeting (or an inflation targeting regime)? And, even worse, what about jawboning?

As a teacher, I wanted my students to feel more confident with this language to ensure they used it in their responses. To this end I recorded a video — split in two parts — that goes through some key (and confusing) vocab.

This is how I’d suggest using this in class.

• Give students this list of terms covered in the video. I cut them up and laminated them for future use.

• Ask students to try and work out the meaning of the terms. Try and avoid them Googling — this defeats the purpose of the task. Put them in teams, resort to pen and paper only. 

• After they’re done, get students to check their understanding through the videos — part one and two.

• Ask the students to evaluate how they performed. Where were the gaps in their understanding?

I don’t make sure students know all the terms before I start. Just throw them in, make them struggle! You might need to leave out some terms. For instance, when I did this activity recently, I left out the term ‘crowding out’. If you try this activity, let me know how you go.

Economic policies aren't perfect

You’re a government. And you’ve got problems. Economic problems. Serious economic problems that require serious solutions. So you want to use your policies: fiscal, monetary and microeconomic. But wait! They’ve all got limitations.

Limitation one: Time lags

No policy has an immediate effect. 

Here, we’ll distinguish between the implementation and effect of policies. The implementation refers to how long it takes to change a policy; effect is all about how long it takes the policy to affect the economy (change economic growth, inflation, etc).

Fiscal policy? It can be generally implemented once a year during the federal budget. And it can take effect quite quickly. Think about tax cuts: as soon as they are passed through Parliament, consumers will change their behaviour.

Monetary policy? The Reserve Bank of Australia meets once a month (except January), meaning the cash rate can be changed every month if required. So this policy can be implemented once a month. However, in terms of effect, monetary policy takes around 6 to 18 months to flow through the economy. So, longer than fiscal policy.

Microeconomic reform? It’s super complicated and expensive, so it can a long time to implement. And it could take decades to finish and have an impact on the economy. So long-term for both implementation and effect.

“Another thing to think about: governments want to be re-elected. So, they may not make tough policy decisions and be limited to safer, less controversial policies (which may not be the best for the economy).”

Limitation two: Political considerations

For fiscal policy and micro reform, the government might have to pass its changes through Parliament. If the government doesn’t have a majority in the Senate (ask me about this in the comments), they might have to compromise and scale back their plans to get them passed. This could limit the types of policies they can implement.

Another thing to think about: governments want to be re-elected. So, they may not make tough policy decisions and be limited to safer, less controversial policies (which may not be the best for the economy).

Monetary policy is conducted by the independent RBA so is free from political considerations.

Limitation three: Global factors

Governments may also face limitations in terms of what policies they can implement due to global conditions.

What do I mean?

One: there is a kind of global focus on specific policies, such as free trade, deregulation (labour markets, financial flows), free floating exchange rates and privatisation of government businesses. A government may face ‘peer pressure’ to follow these policies, even if wants to pursue an alternate policy.

Two: global economic conditions might dictate policy options. For example, there might be pressure on individual governments to run budget deficits during global downturns to support consumption and investment. This could risk plans for budget surpluses.