Introduction to Economics – a webinar for students in Year 9 and 10, featuring Tanya Livermore
Summary
TLDRThis script offers an engaging introduction to economics, discussing its role as a problem-solving tool across various domains like gender equity and environmental issues. It highlights the work of Nobel laureate Esther Duflo and her experimental approach to alleviate poverty. The speaker, an economist at the Reserve Bank of Australia, explains the bank's function in monitoring and influencing economic performance, focusing on inflation and interest rates. The talk concludes with resources for further learning and encourages students to explore economics for its wide applicability.
Takeaways
- 📚 The speaker is an economist with a master's degree from the London School of Economics and has worked at the Reserve Bank of Australia for 11 years, currently managing a team focused on educating students about economics and the role of the Reserve Bank.
- 🔍 Economics is defined as a field of study, a set of tools and frameworks, and a way of thinking about problems and solutions, applicable to a wide range of questions from job retention during the pandemic to gender wage gaps and environmental policies.
- 🧐 The speaker highlights the work of Esther Duflo, a Nobel Prize-winning economist, who uses experimental approaches to measure the effectiveness of policies in alleviating global poverty, such as improving teacher attendance and student test scores in rural India.
- 💡 The script encourages students to think of a question they want answered and consider whether it's a global, national, or individual issue, emphasizing that economics can provide tools to address these questions.
- 📈 Economics helps in decision-making by weighing the benefits and costs of various options, as illustrated by the example of higher pay rates for teachers improving student outcomes in rural India.
- 🌐 The economy is described as a group of decision-makers, including global, national, and personal economies, all interconnected and influencing resource allocation.
- 💼 The speaker explains different sectors of the economy, such as households and the financial sector, and how they make decisions that affect the overall economy, using the circular flow model as a framework to understand these interactions.
- 📊 The Reserve Bank of Australia's role is to monitor economic conditions and influence performance to achieve goals such as low unemployment, steady economic growth, and controlled inflation.
- 💰 The Reserve Bank uses interest rates as a primary tool to affect inflation, adjusting them based on economic performance to either stimulate or cool down the economy.
- 📉 The current Australian economy, as of the script's date, is in a contraction phase with low GDP growth, low inflation, and high unemployment, prompting the Reserve Bank to lower interest rates.
- 📝 The speaker directs students to the Reserve Bank's website for more resources, including videos, interactive tools, infographics, and information about careers in economics.
Q & A
What is the speaker's background in the field of economics?
-The speaker grew up in Wollongong and initially did not study economics in high school. They discovered their interest in economics during their first year at the University of Wollongong, where they studied commerce. They later completed a master's degree in economics at the London School of Economics and have worked as an economist at the Reserve Bank in Sydney for 11 years, currently managing a team focused on educating students about economics and the role of the Reserve Bank.
What is the main topic of the speaker's presentation?
-The main topic of the presentation is economics, including its definition, how an economy works, and the role of the Reserve Bank in the economy.
What is the definition of economics according to the speaker?
-According to the speaker, economics is a field of study, a subject or topic area, a set of tools and frameworks, and a way of thinking about problems and solutions.
How does the speaker describe the approach of economist Esther Duflo in addressing global poverty?
-Esther Duflo uses an experimental approach to economics, applying tools of experimentation to human behavior. For example, she conducted an experiment in rural India to improve teacher attendance by installing cameras and offering higher hourly pay rates for better attendance, which resulted in increased teacher attendance and improved student test scores.
What is the role of the Reserve Bank in the economy?
-The role of the Reserve Bank is to monitor the conditions of the economy, influence its performance, and aim for a steady growth with low unemployment, stable inflation, and controlled interest rates to maintain a healthy economy.
How does the speaker explain the concept of inflation?
-The speaker explains inflation as the change in the prices of goods and services that people buy. If the cost of a basket of goods and services that cost 100 one year ago now costs 105, this represents an inflation rate of 5%.
What is the current state of the Australian economy according to the speaker?
-According to the speaker, the Australian economy is currently in a contraction phase due to the COVID-19 pandemic, with negative GDP growth, low inflation, and an increased unemployment rate.
What is the Reserve Bank's inflation target range for Australia?
-The Reserve Bank's inflation target range for Australia is between two and three percent on average over time.
How does the Reserve Bank influence interest rates to achieve its economic goals?
-The Reserve Bank influences interest rates by adjusting the cash rate and using other tools in its toolkit. Lowering interest rates can boost the economy, while raising them can cool down activity and control inflation.
What resources does the speaker recommend for students to learn more about economics?
-The speaker recommends the Reserve Bank's website for education resources, including videos, digital interactive tools, infographics, and information about careers in economics. They also suggest following the Reserve Bank on social media and subscribing to their YouTube channel for new explainer videos.
How can students explore different sectors of the economy using the Reserve Bank's resources?
-Students can explore different sectors of the economy through the learning activity on the Reserve Bank's website, which covers five different sectors: households, firms, the financial sector, the government sector, and the overseas sector.
Outlines
🎓 Introduction to the Speaker's Background and Economics
The speaker begins by expressing excitement about discussing economics and shares personal background information. They grew up in Wollongong and only discovered their interest in economics during university, leading to a major in the subject and a Master's degree from the London School of Economics. With 11 years of experience at the Reserve Bank in Sydney, the speaker is now a manager focusing on educating students about economics and the Reserve Bank's role. The session's agenda includes defining economics, understanding how economies work, and the Reserve Bank's role in the economy. The speaker invites students to take notes and engage with the material.
📚 Defining Economics and Its Applications
The speaker provides a simple definition of economics as a field of study, a set of tools and frameworks, and a way of thinking about problems and solutions. They illustrate the broad applicability of economics by listing various questions that economists seek to answer, such as job retention during the COVID-19 pandemic, wage gaps, economic disparities between countries, and environmental incentives. The speaker introduces Esther Duflo, a Nobel Prize-winning economist, who uses experimental economics to address global poverty, specifically by improving teacher attendance in rural India, which in turn improves student test scores.
🧑🏫 Encouraging Students to Apply Economic Thinking
The speaker prompts students to think of a question they are curious about and encourages them to consider whether it could be addressed using economic tools. They explain that economics aids in decision-making by weighing benefits and costs. Using the example of Esther Duflo's work, they show how higher pay for better teacher attendance can improve student outcomes, and how decision-makers can use this information to implement policies. The speaker also touches on the broader implications of economic decisions, such as the effects on local businesses and families.
🌐 Understanding the Concept of an Economy
The speaker delves into the concept of an economy, describing it as a group of decision-makers that includes global, national, and personal economies. They use the example of lettuce demand and supply to illustrate how resources are allocated in an economy. The speaker explains that resources are scarce and that economists focus on efficient allocation. They also introduce different economic models, such as government-controlled and market-based economies, with Australia being an example of the latter, where demand and supply drive production and consumption decisions.
🔄 The Circular Flow Model and Economic Sectors
The speaker introduces the circular flow model, which tracks money's movement through the economy, affecting its size and output. They categorize economic decision-makers into five sectors: households, firms, the financial sector, the government sector, and the overseas sector. The speaker focuses on households and the financial sector, explaining their roles in spending, working, saving, and borrowing. They also mention an interactive tool on the Reserve Bank's website for further exploration of the other sectors.
📉 The Role of the Reserve Bank in Economic Monitoring and Policy
The speaker outlines the Reserve Bank's role in monitoring the economy's performance and influencing it to achieve steady growth, full employment, and stable inflation. They explain the concept of inflation and the Reserve Bank's target range for it. The speaker describes how the bank uses interest rates, particularly the cash rate, as a tool to adjust economic activity. They discuss the impact of the COVID-19 pandemic on the Australian economy, noting the negative GDP growth, low inflation, and high unemployment rate, and how the Reserve Bank has responded by lowering interest rates to stimulate the economy.
📈 Economic Data Analysis and Reserve Bank's Response
The speaker analyzes recent economic data, indicating a contraction in the Australian economy due to the COVID-19 pandemic, with negative GDP growth, low inflation, and increased unemployment. They explain that the Reserve Bank has lowered the cash rate to a historic low to combat these economic challenges. The speaker also promotes the Reserve Bank's educational resources, including videos, interactive tools, and social media channels, as valuable aids for students interested in economics.
Mindmap
Keywords
💡Economics
💡Economy
💡Reserve Bank
💡Inflation
💡Interest Rates
💡Business Cycle
💡Scarcity
💡Experimental Economics
💡Circular Flow Model
💡Global Poverty
Highlights
Introduction to the speaker's background in economics and their role at the Reserve Bank of Australia.
Economics defined as a field of study, a set of tools and frameworks, and a way of thinking about problems and solutions.
Examples of economic questions related to the COVID-19 pandemic, gender pay gap, and environmental incentives.
Esther Duflo's Nobel Prize-winning experimental approach to economic questions, particularly in global poverty alleviation.
A case study on improving teacher attendance in rural India through increased pay for higher attendance rates, resulting in improved student test scores.
Invitation for the audience to consider their own economic questions and consider the global, national, or individual scope of these questions.
The importance of decision-making in economics and the framework of weighing benefits and costs.
Economic frameworks to consider the knock-on effects of decisions on individuals, communities, and society.
An explanation of the economy as a group of decision-makers and the concept of scarcity of resources.
Different economic models, including government-controlled and market-based economies, with examples of resource allocation.
Introduction to the five sectors of the economy: households, firms, financial sector, government sector, and overseas sector.
The Circular Flow Model as a framework to understand the flow of money through the economy.
The role of the Reserve Bank in monitoring and influencing economic conditions, with a focus on inflation and interest rates.
The impact of the COVID-19 pandemic on the Australian economy, including GDP contraction, low inflation, and increased unemployment.
The Reserve Bank's response to economic conditions, including lowering interest rates to stimulate the economy.
Resources available on the Reserve Bank's website for further learning about economics, including videos, interactive tools, and career profiles.
Transcripts
good afternoon everyone i'm very excited
to have the opportunity to speak with
you today about economics
and
before i do i would like to just tell
you a little bit about myself
okay so about me um i grew up in
wollongong near the beach
uh i didn't study economics in year 11
and 12. um at that point i didn't even
know what economics was about and
wouldn't have even thought about
choosing it as a subject
i went to the university of wollongong
and i studied commerce in my first
ending my first year there in commerce i
discovered that i actually liked
economics and so i decided to major in
it
i have since gone on to do a master's in
economics in london at the london school
of economics
and i'm gonna have worked
as an economist at the reserve bank here
in sydney for the past 11 years
and i'm now a manager of a team
and the job of my team is to focus on
helping students such as yourselves
learn about economics and the role of
the reserve bank
okay so what will we cover today
we're going to talk about what is
economics
uh what is an economy how does an
economy work and what is the role of the
reserve bank in the economy
so if you have a pen and paper handy or
a word document that you can open on
your laptop there are a few points
throughout where i'll ask you to jot
down some of your thoughts
okay so starting with what is economics
so there are a lot of definitions of
economics out there if you were to put
into google what is economics you would
get a bunch of definitions but what i
find is that they can be hard to
understand unless you already know a bit
about what the terms in the definition
mean and to do that you need to have
already known a little bit about
economics
so what i wanted to do was to just pair
it right back to some kind of definition
that doesn't richly require you knowing
anything about economics up front
so economics is a field of study it's a
subject or a topic area
it's a set of tools and frameworks
and it's a way of thinking about
problems and solutions
so economics can help you answer lots of
different types of questions
um
let's look at a few of what those might
be
how can we help keep people in their
jobs during the cover 19 pandemic is a
question that a lot of economists have
been asking and seeking answers to over
the past 12 months
including here at the reserve bank
another question that economists might
ask is why do women earn less than men
why are some countries rich and some
countries poor
should brisbane bid for the olympics
and how can we provide the right
incentives for businesses to reduce
pollution and introduce greener products
so you can see that these questions span
a lot of different areas we've got
things on the environment on health on
gender equity
um poverty
things like olympics i'm not sure what
category that fits into maybe sports
um
but all these can be answered with
economics tools and frameworks
so let's look at how a a particular
economist has used economics tools um to
answer some big questions
so this is my favorite economist her
name is esther duflo and she's the
co-winner of the nobel prize in
economics in 2019
so her and her colleagues use economic
tools to measure what works and what
doesn't work in alleviating global
poverty
so the approach the tools that esther
uses
is something called an experimental
approach to
answering economics questions
so when i say experiment the first thing
that you might think of is being in like
a science lab where what you want to do
is to measure the effect of one variable
on something holding everything else
constant
so for example you might want to see
what does the effect that changing the
temperature have on a particular
substance so you would keep everything
the same except the temperature that
you're dialing up and down
so while we don't have a science lab
what we're doing with economics is
looking at human behavior
so esther has applied the tools of
experimentation to a human behavior
context
now a good example of where she's done
this is by looking at answering the
question of how to get teachers in rural
india
to attend school every single day so
there was a problem identified that in
some parts of rural india it was hard to
actually get teachers to turn up to
school every day normally we're thinking
about the students not turning up
but in this case
the teachers were a problem
um
so what they decided to do was to run an
experiment
so they thought if we were to put into
some of these schools
cameras to monitor whether the teachers
were attending and also
give the teachers a higher hourly pay
rate for the more
days of the week they they show up to
their school
so that is not just that uh giving them
higher pay because they've worked more
hours but actually
meaning that they get paid more per hour
the more they're in attendance so they
come to school three out of five days
they might get paid twenty dollars an
hour if they come to school five out of
five days they might get paid thirty
dollars per hour across the whole week
so they implemented this in some schools
and not in others
and what they found that was in the
schools that they had this approach
that teachers attendance rates increased
by 20
and
the students test scores also increased
substantially
so they found that basically by doing
this they improved the problem that they
were trying to address
now by having this information decision
makers that are responsible for
schooling in rural india could decide to
roll this out across the board and they
could feel confident that it will
improve outcomes for students
so now it's your turn
i'd like you to think of a question that
you would like to answer
and jot it down on your piece of paper
or on your laptop or device
and this could be any kind of question
it might be something
to do with
the environment something to do with
global affairs something to do with your
subjects that you're going to choose
next year
something to do with what job you might
want to get anything at all
what's the top question that you would
like an answer to
so now you've got something in mind i'd
like you to think about whether this
question
is something at the global level
something at the national
australia level
or something about your family or
individual life
so whatever the question is chances are
that there's a way that economics tools
and frameworks
can be applied to answering it
so an important reason for having
answers to questions is decision making
so typically when there is a question or
a problem to solve there are a set of
options that can be taken and it can be
difficult to know which one to choose
so economics provides a way to weigh up
various options
a simple framework that we use is
considering the benefits and the costs
of each
so in the example earlier esther duflo
found that by paying teachers in rural
india a higher pay rate the more days
they attended school that this had a
significant impact on students test
scores
now the education decision makers can
weigh up the additional cost of paying
higher pay rates
against the additional benefit of the
value that they place on better test
scores for students
and if the benefits outweigh the costs
then they would choose to put the policy
in place
economic frameworks also help to
consider how the decisions of one person
or group of people
can affect the decisions of others
so if i take a hypothetical example in
making a decision to set a higher rate
of paid for teachers the more they
attend school the economist would also
consider the
knock-on effect of this for example
what might the impact of these teachers
having higher pay have on the local
shops and businesses that they might
spend this extra income at
or what implications might it have from
them working more
for the children that they themselves
take care of at home or for early
parents that they might be carers for
an economics also considers how the
decisions of individuals and a community
add up to affect a society as a whole
for example if students in rural india
have better education what impact might
this have on their job prospects
and the skills that they may bring then
to the workforce that improve
productivity for the country overall
so that is economics but what about an
economy
so an economy is a group of decision
makers
so when we looked at questions at the
global level a few slides earlier
um that the australia level and at the
individual level we were actually
looking at different types of economies
we have the global economy the national
economy and the personal economy
and these three all linked together
in the economy decision makers affect
how resources are allocated
for example say that you like eating
salad sandwiches and there are a bunch
of ingredients that go into making it
like bread lettuce carrot whatever you
like to put on there
so let's take one of these ingredients
say lettuce
in economics language
by buying the sandwich you are creating
demand for lettuce
this influences then the supply of
lettuce that's required
so by demanding lettuce you are
influencing the resources that need to
be allocated for lettuce to be produced
so what are resources
resources are things like land
people who use their time to work or
come up with ideas on how to best
allocate resources and raw materials
so in the case of lettuce there would be
the land where it's grown the people to
tend to it and machinery or other
materials to harvest it
the main problem that economists have to
solve is that resources are scarce
most resources are limited or finite but
of course our wants can be endless or
infinite
economists spend a lot of time thinking
about the best way to allocate resources
so think about for example if there was
one piece of fertile land and you had to
decide which crops to grow on it you
might wish to grow every kind of fruit
and vegetable that you can think of
but you would need to make a choice
about the best way to divide up your
land so you produce the crops that you
most valued
so different countries have different
economic models
in some countries the government has a
prominent role in deciding what goods
and services will be produced and how
they'll be allocated
continuing our lettuce example the
government might decide how much lettuce
is to be produced
the australian economy
on the other hand is market-based
so most decisions to produce or consume
goods and services reflect demand
so what people actually want to buy
and supply
how much businesses can provide in the
market
that is if a lot of people want a lot of
lettuce then the price of lettuce will
be such that farmers have an incentive
to grow it because it is more profitable
than growing something else that fewer
people demand
so how does a market-based economy work
exactly
well the short answer is it's very
complex
but the good news is that economists
love to simplify things and to do this
we use frameworks
so let's organize decision makers in the
economy into a simple framework
we can group decision makers based on
the type of decisions that they make
and then we call these groups sectors of
the economy
so we have five different sectors of the
economy in this framework
we've got households firms the financial
sector government sector and overseas
sector so i will talk about two of these
and i'll leave the other three for you
to look into you in your own time
so the household sector
is made up of individuals like you and
me
they make decisions about how to spend
their time how much to work and how much
to do other things
they then make decisions about how to
spend the income that they earn working
and whether or how much to borrow
so think about some of the kinds of
decisions that you make do you have for
example a part-time job if so you're
deciding how much to work
in order to earn some money
and how do you decide how to spend
your money and how much to save
and what are some of the spending
decisions you've made recently
how do you decide between buying one
thing over another thing
so let's look at the financial sector
so this sector is made up of banks and
other financial institutions in the
economy
these institutions make decisions about
how much savings which we call deposits
they need from households and businesses
they also decide how much to lend to
households to buy things like houses or
apartments and how much to lend to
businesses to buy things like equipment
so an activity that you might like to do
with your teacher or in your own time is
the sectors of the economy activity that
can be found on our website on the
education section of the reserve bank
website here you can explore the other
three sectors the firms the government
and the overseas sector
so how do these sectors relate to one
another
a simple framework that economists use
to link the sectors together is called
the circular flow model which measures
how money flows through the economy
again i won't have time to go into
detail about this today but i did want
to flag it with you and suggest taking a
look at the learning activity on the
circular flow model again that's on our
website
the flow of money through the economy
determines how the size of the economy
changes over time this is a way to
summarize how goods and services are
produced to meet demand in the economy
and economists call this output
the way that this output changes over
time is called the business cycle so you
can see on the the graph that we have on
the screen there output goes up and down
over time
so at some times the economy will be
expanding that means it's getting bigger
in these times we will see a decrease in
unemployment
increase in wages which is how much
people earn
and an increase in consumer spending
at other times we will see the economy
contracting which is getting smaller
when we have this we will have an
increase in unemployment
smaller increases in wages and a
decrease in consumer spending
so what is the role of the reserve bank
in all of this
well our job firstly is to monitor the
conditions in in the economy so we're
keeping an eye on how it is performing
and where the economy is in that
business cycle
we will ask questions like
how much spending is there in the
economy
how much
prices are the things people buy
changing
how many people have a job
and how how much are these people with
jobs working
once we have a clear picture of how the
economy is performing our next job is to
influence that performance
what we want to see at the reserve bank
is lots of people in jobs
the economy growing at a steady pace and
the prices of things we buy
not increasing too rapidly or too slowly
so to help the economy achieve this we
pay particular attention to the change
in the prices of things household buy
this is a good indicator of the healthy
economy
now another word that economists use for
the change in the prices of things
people buy is inflation
so let's have a bit of a look at
inflation
so let's say you had a basket or a
collection of goods and services that
you bought last year
and to buy all these things cost 100
now let's say that to buy the exact same
amount of and collection of items or
goods and services this year you would
have to pay 105
this would represent an inflation rate
of five percent
so the rba's goal is to keep inflation
between two and three percent on average
over time
so how does the rba actually affect
inflation
because if it's our objective and we
want to achieve it then we have to have
a way to actually influence it
so what how we do this is we first
influence interest rates
so to give you a definition of what
interest rates are
the most simple one i can think of is
interest rates are the cost of borrowing
and they measure the benefit of saving
and these two things the cost
of borrowing the benefit of saving
influences people's behavior on whether
they spend their money or not and if
they do spend their money how much
so the rba has a toolkit of ways in
which we can influence interest rates in
the economy
the main one of these is something
called the cash rate
i won't go into these in detail today
but you can learn all about them in our
videos on interest rates
now through setting interest rates um
the reserve bank will keep an eye on
predominantly on inflation as i said
with the inflation target so if
inflation is too low
the reserve bank will lower the interest
rate
and this then in turn will boost the
economy
and the same thing on the opposite side
if inflation is too high the rba will
raise the interest rate which then cools
down activity in the economy and brings
inflation back down to that target range
okay so where is the economy at
currently
so when you look at this
business cycle diagram and you can see
that there's periods of expansion
periods of contraction which one do you
think the australian economy would be in
at the moment
and in thinking about that think about
what's been happening over the past 12
months the biggest event in the economy
of the past 12 months is of course being
the covert 19 pandemic which has
predominantly been a health crisis but
has had a big impact on the economy
so to see where we're at in the business
cycle let's have a look at some data
so the first line here is a gdp growth
which is as i mentioned before with the
business cycle where we have output on
the y-axis
you could equally call it output gdp so
gdp growth is the change in output over
time
what we can see is over the over the
year of 2020
that gdp growth was actually negative
so this means that the
size of the economy contracted over 2020
or or the year to september 2020 at
least by 3.8
so that tells us we're in that
contraction phase of the business cycle
we also see that inflation is low at 0.9
over the year to 20 december 2020 that
is um below that 2
bottom of that target range that we have
as australia's inflation target so we
know that 0.9 is quite low inflation
and we also see unemployment rate of 6.6
which compared to where it was a year
earlier at 5.3
is is high
and we know that if everyone in the
economy who could work was working we
would see an unemployment rate uh quite
a bit lower than 6.6
so as a summary
we see that the reserve bank uh
would look to lower the interest rate
because we have inflation that's too low
and economic activity being in that
contraction phase
so that's exactly what we see that the
reserve bank has done over the past year
the cash rate um this time a year ago
was at 0.75
and now we have the cash rate at 0.1
which is incredibly low um it's the
lowest that we've ever had the cash rate
in the history of our country
um
if you would like to play around with
other comparisons of points in time so
in this example i compared what the data
are as at um january 2021 or or nearest
two compared to what the data were a
year ago um you can do these types of
things with our snapshot comparison
digital interactive tool and our website
you can choose different points in time
and different events in recent
australian economic history like the
1991 recession the global financial
crisis um
and a few other things so you can
compare how the economic conditions have
changed between two points in time
so that's all i'm going to cover in
terms of our content today um before i
pass on to q a
but if you want to learn more please
jump on our website at rba.gov.a au
education
we have a whole lot of resources that
are written just for you we have videos
on
many different topics
including things i haven't talked about
today like how to read or interpret
graphs
we have digital interactive tools like i
just mentioned with the snapshot we also
have one that looks at exploring
inflation
we have infographics on things like the
business cycle or unemployment and many
other topics that i think you might find
helpful
we also have information about careers
in economics or things you might like to
do if you were to study economics
so
check this out as well
there's some interesting profiles of
people who have become economists or
using economics tools and frameworks in
a completely different
line of work
and a great way to keep up to date with
new resources or events we are offering
is to follow us on our social media we
have twitter facebook and instagram
accounts
and also if you subscribe to our youtube
channel we're always uploading uploading
new explainer videos which are going to
be very helpful in your studies
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