AP® Macroeconomics

Sample Lesson - Introduction

Lesson 6.02: Determinants of Economic Growth: Human Capital and Physical Capital

People want berries. We want money. Seems like a fair trade.
(Source)

Nature is wonderful. Birds singing, flowers blooming, bunnies frolicking. When the skies are blue, the mountains are singing. Ahh, there's nothing like looking at nature, enjoying it, doing nothing. We call that "relaxing." And it's good stuff.

However, since we call this AP Economics, we need to think beyond being one with nature and think: choices. Think: needs. Think: wants.

An entrepreneur might look out at nature and see, in additional to butterflies and rainbows, an opportunity for adding to the GDP. Or, as we are more likely to phrase it, a chance to make some serious cash.

Not much can beat fresh-picked berries (as long as they aren't poisonous), but not many people want to traipse into the woods, find a berry patch, fight off bees, and pick a bucketful. As entrepreneurs, though, we might be more than willing to provide our berry-picking services in exchange for cash, particularly if we have some mad berry-picking skills.

It's a win-win-win all around. They get berries, we get money, and the GDP gets a little bigger.

Sample Lesson - Reading

Reading 6.6.02: Humans and Hummingbirds—It All Comes Down to Production

Basic economic wisdom states that the factors of production are just the inputs we use to create goods and services that help businesses make money. All businesses need land, labor, capital, and a dash of entrepreneurial spirit (because why else would we take such a risk?).

Depending on the type of business we're talking about, we could get into a pretty decent argument on which factor is the most important. For example, our start-up berry-picking business would require a lot of land and a lot of labor, but—if we're picking berries in the woods—we don't need a lot of capital, just some bug spray and few buckets to put the berries in. Maybe a few signs to advertise, but that's about it.

Now, if we start to get a lot of business, and want to start selling our berries in supermarkets, we'll have to invest in some more capital. Probably a factory or two to sort and package the berries. We'll need trucks to deliver them to the stores. We'll have to hire a creative team to come up with a mascot to make kids think the berries are cool. And so on and so forth.

Power to the People

So we can see how the factors of production can change drastically, but let's think small for now. We're still a humble two-person berry-picking business. Our strength lies in our human capital right now (okay, and having berry bushes, but they're another story for another day).

The human capital—that's us—is where the necessary knowledge, skills, and technical expertise come from. Berries aren't going to pick and sell themselves! Oh yeah, and human capital also includes the motivation required to start and complete the task, as opposed to just binge-watching Brillopad Bill cartoons online.

In short, what people bring into the workplace actually brings in economic value. If we hire Sherri to pick berries, and she picks thirteen pails per day, she's bringing value to us through her work.

However, if half of Sherri's thirteen pails contain squashed, un-sellable berries, then she's less valuable than Jerry, who picks eight pails or perfect berries because Sherri's not producing as much and it takes time to sort out the good from the bad.

But if Jerry is unreliable and doesn't always show up, then Sherri becomes more valuable once again because a bird in the hand is worth two in the bush. Even though we're not picking birds.

Needless to say, measuring the value of human capital is more than a little tricky since not everyone has the same skills, same knowledge, or same drive.

If we want to get crazy and get really specific, and we totally do, we should know that human capital includes social capital. We aren't talking about popularity contests here but rather an agreed upon system of behavior by members of a social group. Rules. Laws. Guidelines. Expectations. Not too exciting, we know, but without them, who knows what chaos would ensue?

Businesses can't operate without some form of social capital because it's those guidelines that make sure people pay for the goods and services they purchase and that keep businesses from selling poison berries to unsuspecting buyers (except in fairy tales because poison fruit is a huge staple in fairy tales).

The Other (non-people) Stuff

Physical capital brings far less confusion than Sherri and Jerry. Since physical capital isn't human, we don't have to worry about sick days or personal drama. These humanmade goods are the computers, the tools, the buildings, and the technology that we use to manufacture the goods and provide the services.

Remember, don't confuse natural resources (the berries, the bushes, the woods, the land) with physical capital.

For berries, our physical capital is pretty simple: buckets and a sink to wash them in before they hit the sale table. The more complex the product or the service, the more physical capital we'll probably need.

Now, let's say that we notice that about 50% of the berries remain unpicked because the workers can't physically reach them. That's a lot of money we're losing. Remember, we can't just yell, "PICK MORE BERRIES!"

We have a choice. We can increase human capital, or we can increase physical capital. In this case, hiring more people won't make the berries easier to reach, so we need physical capital. It turns out that we can buy special remote-controlled hummingbird robots that can reach the hard-to-reach berries and pick them.

With the introduction of this new physical capital, our workers are now able to increase their productivity. In short, increasing physical capital can increase productivity.

But a word to the wise—everything has its limits. Physical capital can depreciate due to wear and tear, upgrades may be required, and technology can become outdated. Humans are just as susceptible to depreciation, which can occur due to technological advances, a lack of training, injury, or mental decline.

Recap

Human and physical capital are two factors that make the production of all goods and services possible. Without humans to bring in the knowledge, skills, and motivation, the machines would either sit unused or run below capacity. The end result would be lower (or no) production, lower quality of goods, and a lot of going-out-of-business signs.

Sample Lesson - Activity

Sample Lesson - Activity

Activity 6.02c: Book 'em, Danno

What determines economic growth? That's what we call the $64,000 question (which is a reference to a really old television game show BTW).

In this activity, we'll set out to answer that question in the form of a children's book, but fair warning: you won't be winning $64k, even if you do a great job, because, honestly, who can put a value on knowledge? Right? Right?!

All mock enthusiasm aside, this activity is a fun one, or at least more fun than stuffy essays. Your mission is to create a children's book that explains to a ten-year-old the answers to the question what determines economic growth? Here are all the details:

• Your book should include pictures. You can draw them yourself or copy and paste pictures from the internet (just include the URL from your source). Stick figures and speech bubbles are A-OK, so don't freak over not being Picasso. 
• Your book should include text (in your own words, of course) to narrate your brilliant exposition on growth. Make sure you use plain language and explain your points because the readers, unlike you, are not quite AP experts.
• Your book should be eight pages minimum, which sounds like a lot, but that's eight pages with text and pictures, so it's not really that much.

Before you go all panicky and stuff…take a deep breath and read on.

(Source)

Start with the obvious: production and what goes into making things. Then talk about human and physical capital. Tell us how these help businesses make what needs making. Tell us how they affect the economy. Talk, too, a wee bit about social capital since it's kinda inextricably linked to the business. And, finally, make sure that we know that we live in a world where limits exist. So we need to know about depreciation. Otherwise, those little kids might think that everything lasts forever, which is totally impossible. Except for Twinkies. They're immortal.

Oh, and be creative and have fun with the book. That's important, too.

When you're done, upload your completed project below. (If you created the book on the computer, just save it and upload it. If you drew your book by hand, then scan or take pics of the pages and upload those.)