National Economics Challenge: Here are some of the questions in this year's contest

Later, today's really, really, really smart teenagers are going to be competing in the finals of the National Economic Council's annual National Economics Challenge. You can kind of think of it as the econ version of the National spelling bee, but tougher. Our own really, really, really smart. Steve Liesman, who we call the professor, is the quiz master for this event. And of course, he joins us right now with a couple of the finalists. Hey, Steve. Hey, good morning, Becky. Yeah, more than 7600 US high school students. They entered this year's competition. Now eight teams of four remain. They're gonna face off this afternoon in two divisions. I'll be Alex Trebek May, Rest in peace. And their international counterparts. They're gonna have their own finals. These kids are going to be answering some amazingly challenging questions. Joining us now are two of the US finalists, Juve Nagarajan, junior at Phillips Exeter Academy, and Alexei Vera, a freshman at Hunter College High School. Thanks for joining us this morning. Good morning. Thank you so much for having me. So you're in the Ricardo division. You're in the Adam Smith division. OK. What's your favorite thing from David Ricardo? Absolutely. A theory of comparative advantage. OK. What about that? So, OK, That means what a country should produce the thing that's it's best at? Precisely. Yeah, precisely that if there are two countries, each country is going to have a lower opportunity cost or how much they could give away to produce something, and they should produce what they have the lower opportunity cost. Here's my favorite part of that. If you're France, right, and you produce bread and wine, right, really good bread and wine, and you're Italy and you produce really good bread and wine, but you have an advantage over France and the bread, what should you do? Produce only bread. Only bread. Get rid of the Italian wine. Get rid of it. That's what economics says. That's why we were talking. It's a dismal science. It's an absolutely dismal science. We have moved away from the one of my problems with subsidizing industries here is that you're sort of going against comparing the the only. The only other problem is you do outsource a lot of of jobs if labour is cheaper somewhere else where it makes sense. That's why we've lost a lot of jobs. So it's it's not absolute that that we should do this, is it now, nothing in in economics is absolutely. We talked about that before. You're in the Adam Smith division. What's your favorite thing from Adam Smith? I'm gonna have to go with his idea of the invisible hand, his assumption that it exists and also the idea that it is beneficial for your economies. Yeah. The invisible hand itself is the idea that everyone acts rationally and in their self-interest. And I think that new far too many people don't think Yeah. And new fields of of on specifically like behavioral economics are highlighting the irrationality and also the idea that maybe self interested actors aren't what's best for an economy. I mean, do you go as far as to be almost what's the Ayn Rand? What's Objectivism? Would you call yourself an objectivist? I would, yeah, I would too. And I and what you said about Adam Smith, if you could just drill one thing into everyone's head out there that doesn't that is looking for capitalism 2.0 or some new verb doesn't work or it's left people behind. You need to know this is what works. This is how it works. This is this is the way of the world. In order to say that, you need to make a lot of those setters, paribus, simplifying assumptions that economists deal with. Was that Latin? Yeah, it was. I took four years of Latin. And I know Portavi, Portatos. We were talking outside about AI. Yeah. Nobody's going to be more affected by AI than these kids growing up. So, Alexei, are you worried about artificial intelligence limiting, for example, the jobs that you might get? Should we? Does your understanding of economics tell you that we should be worried about artificial intelligence? No, I don't think that we should be worried about artificial intelligence as taking away our job. See, for the productivity function, it includes technology. Technology is the main factor in what gets multiplied to see how productive our society is going to be. And when you increase that technology, you increase our productivity. And as we've seen in history, the majority of workers use this technology to their advantage. It doesn't replace them. It it replaces some. To talk to Joe, He's worried about the singularity. He's worried about not worried about the singularity. I want to live forever, so I want to be bionic. And I I see. And that's going to happen by the third. You're a freshman? I'm a freshman. What? You went through the same elementary school, Hunter. Yeah, I go to Hunter College. That's where my mom went 30, what about 50 years ago, Whatever. Just real quick on the topic of AII, think that one thing that's super important to consider is that in econ, whenever we see more efficiency, we also sometimes see a trade off between efficiency and equity, right? And I think that it's important when we're dealing with these new technologies that we're dealing with them in equitable ways because I mean, it's really smart time and time again seeing capital kind of becoming concentrated in AI just yet again, another training to go along with it. You know what an economist said to me, he goes, if, if AI comes along, I could do your job. Are you better off or worse off? And I was thinking about it goes, no, no, no, you're not thinking about it, right? The question is this, who owns the AI? If you own the AI, you're on the beach while the AI does your job. If your boss owns the AI, you're on the beach without a job. Do we have time with this? Was this was the part we didn't even talk about? But now we're going to do some of the questions that they're going to maybe get today. And these are even some of the easier ones. OK, Now listen, question one. They have not heard these in advance. Assume world oil prices. You guys can play at home if you like. Assume world oil prices are rising and that a country is dependent on importing oil. What will likely happen to this country's unemployment and inflation, and what terms do economists use to describe the situation? I would I would say that both would likely shorten aggregate supply shock. Both would likely increase, and that's a stagflationary scenario. Definitely 1970s, Very good. I think that's right. OK, here's a good one. This is an important one. If your nominal salary is rising at 4% annually and inflation is constant at 1%, how long will it take you for your real income to double? Rule of 72? Yeah, 72 / 3. So that's what, 2424? Yeah, 24. OK, so how, what did you do? What what's describe for people at home? The math, Sure. So I mean, the real income is really the rate of nominal income growth over a minus the rate of inflation, right? So they get 4 - 1 to start with. That's three. That's the number you care about folks at home. It's your real income. Yep. And then there's the rule of 72, which is you just take whatever your rate of return is. Do you got that jump? No, I I got that right. I just don't know why you didn't do if your incomes rising 4% and like today's Biden, Bidenomics and inflation is going up at 7%. How much are you losing? And in 10 years, how much less will be making than you? I would have done it that way. And so Biden is responsible for all the inflation and Trump's going to fix it mostly. How's he going to fix it? Hopefully. Oh, I don't. Let's go on. That can be another question. All right, what other famous book did Adam Smith write besides The Wealth of Nations? Alexei, we've actually learned about this this year in in our global studies class. We learned about capitalism. I don't know that it's where. I think it's where you introduced the invisible hand. I think it's a theory of moral sentiment. Bing, Bing, Bing, Bing, Bing, Bing theory of moral sentiment. Theory of moral sentiment. OK, one more here. Maybe If a nation is suffering from severe unemployment, what would you recommend at central bank do on the foreign exchange market? Severe unemployment. So according to Phillips Curve, unemployment in the short run has an inverse relationship with inflation. So we're going to want to decrease the unemployment by increasing the inflation rate. They might want to sell bonds and increase the money supply. And maybe on the foreign exchange market, that's not bad, but that's not exactly the answer we're looking for. I would say like on the foreign exchange market specifically, I mean, if you want to alleviate unemployment, you want to export more, I'd say, right, typically. And how would you do that? Depreciating the currency. That's right. True, right. You would depreciate the currency, you would sell your currency or buy a foreign currency in order to lower the value of your currency relative to others, and then you could increase your exports and sell more bread or wine.