Whenever a country enters a recession, there are two classes of responses available: fiscal and monetary policy responses. Fiscal policy responses focus on taxation and spending while monetary policy responses refer to Central Bank activity. In the United States, fiscal policy is administered by the Federal Reserve. The Fed is responsible for influencing the quantity of money and credit in the economy. During the Covid-19 pandemic, the Federal Reserve was responsible for issuing treasury bonds to finance fiscal policy decisions.
The G Word with Adam Conover – Importance of Financial Stability
A stable financial system is an important component of an efficient market. Ensuring financial stability allows markets to allocate resources, assess and manage financial risk, and maintain employment levels close to the natural rate. When a bank has failed, the FDIC works to ensure that there are no major disruptions of financial transactions and that economic agents can continue to operate with confidence. With a strong market, the FDIC doesn’t need to intervene often, but the agency was very active during the Great Recession when a lot of banks failed. When a bank failure does occur, the FDIC works to transfer assets of one bank to an acquiring bank or they will take on those assets themselves until the find a suitable acquirer.
The G Word with Adam Conover – Run for Your Money
In the early 1900s, the banking system wasn’t as stable as we might have hoped. Banks loan out money to borrowers, but are susceptible to a panic when a lot of customers want their money held in savings. A bank run occurs when a large number of a bank’s depositors attempt to withdraw their money simultaneously because they believe the bank will become insolvent. This happened frequently enough during the Great Depression that it put pressure on the President to create an insurance program.
The G Word with Adam Conover – Lemonade for Pictures
In order for bartering to be a successful payment of transactions, both sides must want what the other is offering and be willing to trade for it. Unfortunately, the seen above shows the difficulty of meeting the condition known as double coincidence of wants. Even though the man has Johnny Cash headshots, the young entrepreneur is only willing to accept US cash.
The G Word with Adam Conover – Trust in Money
US currency may say “In God We Trust” but in order for the bills to mean anything, we place our trust in the US government. US currency is a type of fiat currency (as opposed to a commodity money) that has the backing of the US government. In order for something to be considered money, it must serve three general properties: store of value, a unit of account, and a medium of exchange. Each can be seen in the clip above. A lemonade seller won’t accept just anything, they want money (medium of exchange). We know the price of the lemonade because we use dollars as a measure of its worth (unit of account) and we expect those dollars to be worth the same amount over a certain period time (store of value).
The Grinch — Christmas Will Be 3 Times Bigger
The increasing commercialism of Christmas can be used to illustrate the concept of inflation. In The Grinch, one of the Whos shows the Grinch a new flyer that the mayor is anticipating that Christmas in Whoville will be three times bigger than last year! In a similar manner, inflation can devalue money and cause people to spend an increasing amount of money each year to keep up with the past. A specific set of Christmas decorations won’t be valuable as the previous year since everyone is expected to do things three times bigger this year.
Thanks to Mandy Mandzik for the clip recommendation. Check out her working paper, All I Want for Christmas is an A on My Econ Final: A Holiday-Themed Review Class, for more Christmas-themed economics examples.
How the Grinch Stole Christmas — Extreme Decorating
The increasing commercialism of Christmas can be used to illustrate the concept of inflation. In The Grinch Who Stole Christmas, the Whos engage in a yearly competition to have the best Christmas light display. Each year the neighbors attempt to outdo each other with bigger and more extravagant displays. In a similar manner, inflation can devalue money and cause people to spend an increasing amount of money each year to keep up with the past. A specific length of Christmas lights isn’t as valuable the next year as it was the year before and neighbors will have to spend more and more to remain competitive.
Thanks to Mandy Mandzik for the clip recommendation. Check out her working paper, All I Want for Christmas is an A on My Econ Final: A Holiday-Themed Review Class, for more Christmas-themed economics examples.
Harry Potter and the Sorcerer’s Stone — Not Enough Presents
Harry Potter’s spoiled cousin Dudley Dursley is upset that he received fewer presents for his birthday than last year. Instead of holding firm, Dudley’s parents decide to increase the number of presents to make up for Dudley’s disappointment. Similar to inflationary pressure seen across a broader economy, Dudley’s gifts seem to lose value over time and only an increasing number of gifts will satisfy him. There’s an expectation that each year Dudley will receive more gifts than the year before.
Thanks to Amanda Mandzik for this clip suggestion and summary!
Teen Titans Go — The Gold Standard
The gang tries to catch a leprechaun for St. Patrick’s Day so that they can get his three wishes. In their quest, Beast Boy uses one of his wishes to become a leprechaun and beings to “live the leprechaun life” which includes a lust gold. Beast boy sells all of his friend’s stuff in exchange for gold. He then announces that his goal is to get the government back on the gold standard and attempt to fix the exchange rate. They go on to explain the rationale behind the gold standard and Nixon’s authorization to end the gold standard.
Thanks to “Mike on Twitter” for posting about the clip!
The Pajama Game — 7 1/2 Cents
Asking for a raise is tough, but even a modest raise in wages can have a huge impact on worker salaries. In this scene from The Pajama Game, we see how a 7.5 cent raise can impact a worker’s wage. The cast goes through the calculations of what they could earn with additional income, including an automatic washing machine, a year supply of gasoline, and a vacuum cleaner.
Assessment idea: This is a neat opportunity to calculate real wages and see what 7.5 cents would be worth today versus 1953. The BLS has a calculator so you don’t have to wait!
Looking for more: Do you want to see more economics in Broadway shows? Check out BroadwayEconomics.com
Thanks to Mark Sammons from the University of Arizona for sending this clip in!