Overview
An interactive activity that sets the classroom floor for debate.
The two different models (austerity vs. stimulus) should be used in their ‘pure’ representation, however explain that in reality governments decisions are more nuanced and not black or white.
Aims
- To enable students to become knowledgeable in the different political economy theories
- To promote skills of debate and analysis
- To generate interest and discussion around different ways to manage a crisis
Materials and time
Photocopies of the cards (below) with the different situations of economic imbalance. Explanation and group activity is estimated between 20 and 30 mins. The final discussion should take 30 min approximately according to the number of groups.
Group size
16 minimum
Instructions for trainers
- Divide the students into pair groups that later will be divided again in half.
- Number the cards below and ask the students groups to each pick a card. Each card contains different economic imbalances.
- Ask the groups to read and discuss each problematic situation and think about which recommendations would be taken by each model (neoclassical or Keynesian). For this, each group should be divided in half and take the role-play of representing one of each of the two economic schools.
- After the discussion in their groups, each group in turn takes to the stand and presents their argument. For this, arrange the room to allow the speaking contestants to get a central position in the classroom, arranging the seats for the rest of the students around to listen and observe.
- Following each group discussion the teacher should ask the audience (the rest of the students) to vote for which solution they would support and why.
- To guide the students into what role each should take, they should clarify their positions by trying to answer WHAT, HOW and WHOM. Here there are some questions to guide the analysis:
a. Should the State intervene or not?
b. If yes, how?
i. Fiscal policy: expanding public spending (granting subsidies, reducing taxes, etc); or reducing it (rising taxes, privatising public assets, etc)
ii. Monetary policy: expanding money supply and with it lowering interest rates encouraging consumption and investment; or reducing the money supply and with it raising the interest rate, therefore encouraging saving and the removal of money from the economy.
c. If not, how?
i. Leaving the market to regulate by itself, allowing prices to increase if there is a demand excess, or reduce if there is an oversupply.
ii. By automatic mechanisms: depletion of the existing capital stock that requires its replacement and therefore rising the labour demand
d. Are the actions taken more similar to an austerity plan or to a public investment one?
e. What might the social impacts be? / Which sector of the society will benefit the most?
Problem cards
Inflation: prices rise faster than wages and nominal interest rates. As prices rise faster than wages, consumption decreases; investment also decreases due to the high process volatility and uncertainty.
Recession: a period of negative economic growth or in other words a decline in the size of the economy. As the economic activity is slowing down, consumption is reduced and companies’ inventories increase.
Debt crisis: government increases their expenses while at the same time incomes fall
Unemployment: an imbalance between demand and supply of workers. It is due to swings in the business cycle, as costs have increased and companies need to reduce the number of employees in order to not lose benefits.
Inequality: enlargement of inequality as a result of the increasing concentration of wealth at the already high levels of the wealthy population, resulting in the deterioration in the living standards of the majority.
