On Economics

I bought my fair tickets last night, so now I am eagerly anticipating Friday at approximately noon! I plan on eating all of the following: a turkey leg, fudge elephant ear, footlong hot dog and fried pickles. And if someone offers me a bite of deep fried candy bar, I definitely wouldn't turn that down either. Today: post office to mail the bday box, since Columbus closed the PO yesterday, and saying goodbye to my bff for two years:(
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One of my best friends is a 7th grade math and social studies teacher, and she asked me to answer a bunch of questions about the economy for her curious students. Here are my replies, to share my love of economics with the leaders of tomorrow! Hahaha. (Notice the interspersed exclamation points).


What is the economy?
The economy is made up of all the things that we buy and sell within our country and throughout the world (different markets). Every country has its own economy—made up of its own money and industries. The economy is made up of money—from taxes, people’s savings and the money that companies make by doing business. The general economy also includes factors like inflation (rise in prices of things you buy everyday), the stock market and unemployment rates, as well as many other things!

What is North Carolina’s economy based on?
Our economy is made up of many different parts. We have a lot of agriculture in our state, and many people make a living by farming and selling the food that they grow. The majority of our economy is made up of people who work in “private industry”—that can be anything from banks and other big companies, to grocery stores and gas stations. All of these businesses are “for profit”, and that is how the majority of people in NC earn their money, and contribute to the economy. Also, our current unemployment rate is 6.9%. That means that 6.9% of people in the state who are looking for a job cannot find one. That number is a little higher than usual because of all the problems you have been hearing about in the United States’ economy.

What is the stock market, how do you buy a stock and what is an average price for stock?
The stock market is made up of all different stocks of companies in the United States (every country has its own stock market). When a company wants to raise money to expand its business, it will offer stock in the company for sale. People like us can buy shares (individual pieces of stock) in the company to help them raise their money, and in turn, we get to own a little piece of that company and are called a “shareholder”. You can buy a share from someone called a stock broker—it is their job to help people buy and sell stocks, and sometimes manage people’s “portfolios”, a combination of all the different stock they own. The value of the shares changes all the time depending on how many people are buying and selling their shares. If a lot of people want to buy the shares at one time, then the price will go up because there aren’t enough shares to go around, and people are willing to pay more for them. The opposite is true if lots of people want to sell at one time, then the value goes down. There is no average price for stock—it all depends on the company. For example, a share of Google right now costs $371, while a company like Wal-Mart costs $54. A company called Berkshire Hathaway has shares that cost $120,000 each!


What happens when the economy goes down too much, what happens when the economy is good, and what will the economy look like in the future?
When the economy is bad, like it has in the past few months, a lot of things go on in our country. Often, more people will be unemployed and prices will be inflated, so people generally don’t have as much money to spend on unnecessary things like clothes and going out to eat. That also makes the stock market go down because people do not have as much money to spend in their communities, and the companies in the stock market do not make as much profit and not as many people want to buy shares of stock. When the economy is good, the opposite is true! There is less unemployment, people have more money to spend on the fun things (like shopping and going out to eat), and companies make profit because all those people are spending that extra money in their communities. There is really no way to know for sure what the economy will be like in the future, but it does have patterns of recessions (the bad times—we are in one now) and expansions. Recessions usually last about a year, and then the markets will slowly start to recover. This means that more jobs will be created and companies will start making profit again. Sometimes the government will cut taxes to try to stimulate the economy.

Will we go into another “Great Depression”?
There is no certain answer, but I think that we probably will not. Even though the economy is bad right now and we are in a recession, we have a lot of laws and government regulation in place to help prevent another Great Depression. For example, banks are insured by the government so that your money is guaranteed up to $100,000 in any one bank—that wasn’t true in the Great Depression of the 1930s!

How will other countries be affected by our economy?
Our economy is definitely a global one! The United States has the biggest economy in the world, and lots of other countries look to us for signs of how good or bad the world’s economy is doing. They even lend us money when we need it by buying our “treasury bonds”. Many companies who do business in the US also operate in countries around the world. The US also lends money to other countries very often, so when we do not have as much money to lend, it hurts other countries too.

What is the bailout plan, will it put the government into debt and will taxes go up?
The bailout plan is a $700 billion plan to rescue many of the banks in the US that are in financial trouble. The current financial “crisis” began mostly because of something called sub-prime mortgages. This means that banks were lending money to people to buy houses that they could not afford—these people did not have enough money to pay back their loans in the long run, and many of them could not even make the first payment. Many banks had lent out most of their money to people who could not pay them back, and then ran out of money all together. The bailout plan will help to refund those loans to the banks, so that they can start to function normally again (lending money and collecting interest from people who can actually afford to pay them back). Yes, the bailout plan will put the government into more debt and yes, taxes will go up because the government is funded by tax payers. This doesn’t mean that taxes will go up a lot right now and we will pay it all back very fast! Most likely taxes will increase in very small amounts and the $700B will be paid back over time.

Why are there so many foreclosures?
Like I mentioned above, many of the people in the sub-prime mortgage crisis attempted to buy homes that they could not afford, and then could not repay their home loans. When a person does not pay their mortgage (for a certain period of time—usually a few months to a year), the bank steps in a takes the house because the bank is the real owner and the person who took out the loan is repaying the bank. A foreclosure happens when the bank takes over the home and tries to sell it to someone else (usually at a discounted price) so they can make the money back on the original loan.

Does the economy influence healthcare?
Yes, the economy does influence healthcare. Unfortunately when the economy is bad, more people go without healthcare insurance because they cannot afford it. Also, the cost of many supplies or medicines may go up as well, because of inflation.

Why has the cost of groceries gone up over time?
There are lots of reasons for this. The first is that, with inflation, the cost of living has gone up over time, so the farmers that grow produce have to sell their goods at a higher price to be able to earn a living. Second, the cost of gas has gone up a lot recently, so it costs more to transport groceries from farms and companies who make other products, to your grocery store. And, again, inflation in general has caused prices of lots of different things to rise, and the same is true for groceries.

I think I definitely have a future as a children's author about economic issues! Not.