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Using Film Clips to Teach Public Choice Economics: Take Two
No full textRecent years have seen a trend away from chalk and talk toward alternative pedagogical approaches to teaching economics. Media clips, in particular, have been touted as a way to provide students with memorable and exciting exposure to economic concepts. Media clips are especially well-suited for teaching public choice economics because of the plethora of films and television shows depicting government activity. This paper documents how clips from popular movies and series such as Cloudy with a Chance of Meatballs and House of Cards can be used to teach public choice economics
Can Public Choice Theory Help Make Classroom Macroeconomics More Useful?
No full textClasses in macroeconomics typically present versions of the dynamic aggregate demand/ aggregate supply framework to analyze short term fluctuations and optimal monetary policy responses to economic conditions. In these models an output market equilibrium condition is usually combined with a short run Phillips Curve and a monetary policy reaction function. Output, inflation and real and nominal interest rates are shown to respond to (exogenous) supply and demand shocks and interact with one another over time. These models fail to incorporate the fact that policymakers must be modeled as responding to their incentives given their constraints. Policy isn\u27t usefully modeled as an exogenous variable and fifty plus years of Public Choice theory has enriched the insights gained from studying non-market decisions. This essay explains how incorporating the research from Public Choice Theory into macroeconomics can better help us understand real world political institutions and allow for a richer classroom analysis of macroeconomics and macroeconomic policy
Using the Automobile Lease to Illustrate Topics in Corporate Finance
No full textDespite the growing popularity of consumer automobile leases, they remain poorly understood by many consumers. This teaching note describes a possible spreadsheet assignment based on an ordinary automobile lease advertisement. With careful analysis of the proposed lease, several important fmancial concepts are revealed, including: internal rate of return, net advantage to leasing, opportunity cost, sunk costs, liquidity, equivalent annual cost, crossover rate, and real option value. By using the familiar and relatable auto lease example, student engagement with the material is improved. The examples and associated problems given are suitable for intermediate-level students of managerial finance, personal finance, or capital budgeting
A Pedagogical Note on the Dynamics of Capital Market Efficiency for the Introductory Finance Course
No full textIntroductory finance textbooks commonly address capital market efficiency from a largely static perspective with little or no attention to the dynamics that bring the price of a security into equality with its intrinsic value. This note offers a simple pedagogy to illustrate the process by which capital market efficiency will return a stock’s price to equal its true value and simultaneously bring the expected rate of return on the stock into equality with the market’s required return
On the Value of Teaching Edgeworth Boxes in Introductory Economics Courses
No full textEdgeworth boxes, which illustrate the movement toward equilibrium via trade, are almost universally relegated to intermediate microeconomics courses. I argue for their inclusion in introductory courses as a natural bridge between production / consumption possibility frontiers and supply / demand curves. When presented in an intuitive, graph-based fashion, the Edgeworth box model provides a supplementary illustration (to the Ricardian model) of trade as a Pareto improvement and emphasizes production for the purpose of utility via consumption rather than for its own sake. A course which only includes production as such is, therefore, incomplete
Are Banks Ripping Off\u27 the Consumer When It Comes to Mortgages?
No full textIn this pedagogical paper, we answer two questions: If someone has a fixed-rate mortgage and pays it off after only a few years, is the bank ripping off\u27 the consumer because of the low equity; and when is the interest portion of a mortgage payment exactly equal to the principal portion? The mathematics inherent to a fixed-rate mortgage dictate that a greater portion of interest is paid in the early years. To find the exact point in time when the interest and principal payments are exactly equal requires examining this question using continuous function mathematics
Student Input Confusion and Unintentional Bias: A Note on Teaching the Capital Asset Pricing Model
No full textFinance textbooks include the Capital Asset Pricing Model (CAPM) as a method to estimate the required return on equity capital. The graphical depiction of the Security Market Line (SML) can be used to examine risk-reward trade-offs for both security analysis and capital investment proposals. In attempts to apply the CAPM in practice, students often confuse the expected return on the market with the market risk premium. This paper provides teaching examples that clarify how changes in the risk-free rate should be made in concert with the market risk premium to avoid the introduction of bias in the resulting investment process
Yield-to-Maturity and the Reinvestment of Coupon Payments
No full textThis note addresses a common misconception, found in investment texts and popular investment education literature, that in order to earn the yield to maturity on a coupon bond an investor must reinvest the coupon payments. We identify a sample of text and professional sources making this claim, demonstrate that yield to maturity entails no assumption of coupon reinvestment, discuss a cause for this confusion and offer a possible remedy
Advancing the Credit Channel and Credit Rationing in the Undergraduate Curriculum: A Useful Model
No full textThis paper introduces a model of the lending decision that accounts for credit rationing behavior as it captures fundamental aspects of the credit channel of monetary policy. The model distinguishes between the credit channel’s bank-lending and balance-sheet effects in its representation of how different types of shocks influence lending. It is hoped that the model will facilitate and encourage greater attention in the undergraduate curriculum to the credit channel as well as credit rationing, the significance of both having been accentuated by the recent sub-prime lending crisis and the Fed’s expanded responsibilities in the financial markets
Using Videoconferencing to Solve a Business Finance Problem: Challenges and Lessons Learned from a Transatlantic Experience
No full textThis study presents a transatlantic project that requires business students to use videoconferencing to solve a real world business finance problem. We discuss the project’s design and delivery, the usefulness of videoconferencing in this context, and the challenges and lessons learned in the cross-cultural setting by instructors and students on each side of the Atlantic. A post-project survey reveals both German and U.S. students regard the transatlantic project to be a valuable experience, though the U.S. students view the project more favorably than did their German counterparts. The project also reveals some interesting transatlantic differences in higher education pedagogies