The chapter investigates factors that influence adults' knowledge of economics and personal finance. The authors surveyed a sample of adults with a norm-referenced exam that includes questions specific to economics knowledge and questions specific to financial knowledge, along with a background questionnaire. A two-equation seemingly unrelated regression system was estimated that included the percent correct economics sub-score and percent correct financial sub-score as separate dependent variables as functions of the same set of background explanatory variables. They found that some factors such as age, education level and income were associated with how much adults know about finance and economics, with the larger estimated influences found with respect to financial knowledge. Formal economics coursework influenced knowledge of economics, but not financial knowledge, while owning a home was associated only with greater knowledge of finance. The results suggest life experiences influence financial knowledge more than economics knowledge, and formal instruction in personal finance alone is insufficient preparation for making sound economic decisions on financial matters. An understanding of the economic way of thinking, learned mostly though formal instruction, combined with knowledge of personal finance can help people make wiser financial decisions.
Browse by title
Kenneth C. Rebeck and William B. Walstad
The chapter provides examples of economics humor that come directly from published economic literature, and that could perhaps be integrated into upper-level undergraduate course discussions, or included, as an occasional break from traditional texts and articles, on reading lists in graduate courses. These examples, which come from some of the top economics humor contributions to the literature, are accompanied by background information that in some cases arose from communications with the author, and so have not previously appeared in print.
Michael R. Hammock and Art Carden
The classic noir film The Third Man tells a story of a staged death, an over-inquisitive friend and a hopeless lover, in the dark world of postwar Vienna. It is also an excellent demonstration of the effects of price controls and rationing, and of the unpleasant consequences of the resulting black markets. The chapter shows how we can understand a character's actions using economic insights. More generally, the economics of government price controls and coupon rationing are explored and it is suggested that The Third Man provides a vivid illustration of their impact.
Michael R. Hammock and Art Carden
Economists often need practical examples of the propositions discussed in class. Many such examples are provided in Trading Places, which, in addition to being an entertaining movie, illustrates a number of important points about economics, including the role of property rights, the costs of discrimination, the importance (and definition) of profit and the role of expectations and information in determining resource allocation across space and time. The movie is rich in lessons about basic economics and would make a valuable addition to any economist's pedagogical toolkit for its illustration of commodities and futures markets. A summary and explanation of the movie's economic content is given as well as implications for natural resources and the role of property rights.
Scott A. Beaulier, Franklin G. Mixon and Richard J. Cebula
Arguably, the types of examples used by texts in examining Coasian bargains that address negative externalities are not the types of situations or stories that typically appeal to traditional college and university students. The chapter provides a more modern story for principles instructors to use as a supplement to traditional textbook accounts of the problems associated with externalities and the applicability of the Coase Theorem.
In a classroom experiment, students represent banks that borrow or lend in the federal funds market. As students negotiate loans with each other, they see how Federal Reserve open market operations affect the interest rates on their loans. Participating in the experiment vividly demonstrates why the removal of banking reserves via open market sales raises the federal funds rate and why the addition of banking reserves via open market purchases lowers the federal funds rate. The experiment uses a non-computerized double oral auction format and takes about 45 minutes to run. In the follow-up assignment, students analyse the data generated by the class. The experiment can be used in a money and banking or macroeconomics course, with 9-100 students.
Michelle A. Vachris
The novel The Gilded Age, A Tale of Today by Mark Twain and Charles Dudley Warner tells the tale of crony capitalism in the United States after the Civil War and is the book that gave 'The Gilded Age' era its name. The chapter uses the public choice framework to analyse themes in the novel and provides various excerpts and assignments that could be incorporated into an undergraduate upper-level field course, such as Public Choice, Public Sector Economics or United States Economic History. Examples from the novel are compared to real-world events in the United States, showing parallels between today's economy and the roots of the so-called Progressive Era.
Joel M. Potter and John L. Scott
Using clickers, students may respond to a professor's questions in class by pressing a button on a device resembling a television remote control; then view the frequency distribution of the class's answers. In this way, the professor may test the students' knowledge during the lecture, providing immediate feedback to the students and gaining information on how well students have understood the lecture. Previous research on clickers has focused on student satisfaction. The small subset of research that examines the effect of clickers on student performance uses bivariate tests and few controls. In the chapter, the authors test whether clickers enhance learning, as measured by test scores. They used clickers in two sections of the course Principles of Microeconomics. In one section, clickers were used on the supply and demand chapter and in the other section, clickers were used the elasticity chapter. The authors compare the achievement of students on material for which clickers were used with the achievement of students on material for which clickers were not used. Using a technique that takes account of the complex interactions of the relevant variables, they find no support for the hypothesis that clickers improve performance.
Paul W. Grimes, Kevin E. Rogers and William D. Bosshardt
In the chapter a national survey administered in the spring of 2010 is used to evaluate the relationship between economic literacy and personal opinions regarding the recent financial crisis and ensuing recession. The survey results showed a discrepancy between perceived and revealed economic understanding for American adults. While 55 percent of survey respondents rated their understanding of economics as either good or excellent, on average the sample scored only 47 percent correct on a short quiz covering basic economic concepts. This divergent relationship was found to persist across all levels of obtained economic education. Survey respondents were asked to identify those agents they held responsible for instigating the financial crisis as well as possible policy solutions to the resulting Great Recession. A probit model is used to analyse the factors influencing the holding of reported opinions. The results indicate that those with formal economic education were more likely to blame the banking and mortgage industries for the crisis and favored a reduced role of government in the economy as a solution to the recession.
Joel M. Potter and John L. Scott
Using a value-neutral classroom experiment, the chapter examines potential grade improvements from cheating by removing the stigma from the activity and by allowing extensive access to others' answers. The authors find that students do not appraise partners' answers as correct or incorrect and strategically change their answers based on this information.