Download You are an economic entity!

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.
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Student Learning Objectives
For this RWLO, the student will be able to:
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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”
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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
http://www.cbpp.org/pa-statelist.htm 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!
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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)
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, selfdirected 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
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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
Rent payment
Food expenses
_______
_______
_______
Clothing expenses
Credit card payment
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 $_______________.
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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 http://www.bea.gov . 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 http://www.cbpp.org/pa-statelist.htm
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! 
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Referenced URLs:
 http://en.wikipedia.org/wiki/Gross_domestic_product
 http://www.bea.gov/bea/dn/gdplev.xls
 http://www.cbpp.org/pa-statelist.htm
 http://www.cbpp.org/pa-az.htm
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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
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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.
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Discussion Question Grading Rubric
10 Point Grading Scale
Objectives
Low Performance
Upon completion of these
0 points
activities, the student will be Student is not able
able to: Use basic math skills or does not perform
to discover how much the
the math required.
student spends in a year and
find their “economic value” by
dividing their economic value
by the GDP
Upon completion of these
0 points
activities, the student will be Student in unable to
able to: define their role in
determine point of
the economy and provide
view.
evidence to back up their
point of view
Upon completion of these
0 points
activities, the student will be Student is unable to
able to: define how his/her
define how his/her
participation in the economy participation in the
effects the lives and jobs of economy effects the
others.
lives and jobs of
others.
Upon completion of these
0 points
activities, the student will be Student is unable to
able to: recognize and use
distinguish and use
credible sources online.
credible sources
online.
0 points
Good Performance
2 points
Student perform the
math required and
interpret the % from
their calculator.
Upon completion of these
Student writes a
activities, the student will be summary, but does
able to write a summary.
not capture the
essential
information.
Student is able to
write a summary
that contains the
essential
information.
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Earned
Points
2 points
Student recognizes
and distinguishes
point of view.
2 points
Student is able to
define how his/her
participation in the
economy effects the
lives and jobs of
others.
2 points
Student is able to
distinguish and use
credible sources
online.
2 points
Score:
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.
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Describe the structure and trend of the U.S. Gross Domestic
Product.
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Describe basic “multiplier effect” principles of major economic
systems.
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Describe basic economic concepts and how the concepts relate
to monetary policy.

Demonstrate proficiency in common arithmetic operations with
whole numbers, fractions, and decimals.
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Supplementary Resources
Wikipedia is an open source cyber community based listing of definitions
and articles about over 750.000 topics.
http://en.wikipedia.org/wiki/Multiplier_effect
A fun demonstration of the effect for classroom use:
http://www.econoclass.com/GDPstrings.html
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:
http://ohio.honda.com/Ohio/multiplier.cfm 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:
http://www.answers.com/topic/multiplier-effect
This is an interesting International Article about how taxes negate the
multiplier effect (from India – The Hindu Business Line):
http://www.blonnet.com/2005/04/04/stories/2005040400100800.htm
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.
http://www.bized.ac.uk/virtual/economy/policy/tools/government/gexpth5.h
tm
Use http://www.google.com to search for: “spending/income multiplier
effect”. There are many sites and explanations available.
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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-pairshare” 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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