The Iowa Electronic Markets
Macroeconomic Conditions: Measurement
and Political Implications
Economics Curriculum Using the IEM
Presidential and Congressional Control
Markets
September, 2000
Learning Objectives
Macroeconomic Conditions: Measurement and Political Implications
Module Summary
This module summarizes the relationship between macroeconomic conditions and
national elections. Students will learn how economic data provide important information
about the state of the economy, how to measure a variety of economic indicators, and
how these indicators are related to national elections. In addition, students will apply
their skills in using economic indicators to forecast election results and compare their
results to other forecasting methods (polls, Iowa Electronic Markets) as well as actual
election outcomes.
Prior to implementing this module, instructors should:
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Obtain and read the background information on Ray Fair’s Vote Predictions Model
Source: fairmodel.econ.yale.edu/vote (with links to articles and the model)
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Be familiar with the Iowa Electronic Markets Vote-Share Market (and/or
Congressional Control Market)
Sources:
(1) biz.uiowa.edu/iem/news.html (articles on the vote-share market, e.g. see
Business Week, November 11, 1996; Business Week, October 9, 2000);
(2) biz.uiowa.edu/iem/about.html (e.g. see Wall Street Journal, August 28, 1995)
Prior to this module, students should:

Be able to access the Web, go to specific Web sites, and download data

Be familiar with use of Excel spreadsheets to record data, compute simple algebraic
functions (percent change), and graph results.
Learning Objectives
At the end of this module, students should be able to:
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identify and understand the importance of basic indicators of national economic
conditions.
obtain, utilize, and interpret macroeconomic data used to summarize national
economic conditions.
understand and explain how national economic indicators are measured and used to
summarize and describe economic conditions.
understand the relationship between national economic conditions and the outcome
of national elections.
understand how the IEM political markets are used to predict national elections and
how they differ from other election-prediction tools (e.g. polls and economic models)
explain how accurately the Iowa Electronic Markets ( IEM) political markets have
predicted past national election outcomes relative to economic models and public
opinion polls (focus on 2000 presidential election)
(Optional, when presidential markets are open) apply the knowledge about
macroeconomic indicators and the economic data to trade in IEM political markets.
Lecture Outline
Macroeconomic Conditions: Measurement and Political Implications
1. Motivation
a. Does the Government Affect the Economy?
1) Government spending as % of GDP
b. Does the Economy Affect the Government?
1.) Do macroeconomic conditions influence national elections?
2.) Political quotes from past presidential elections
2. How do we Determine the Condition of the Economy?
a. Measuring Macroeconomic Conditions
1.) Inflation
2.) Unemployment
3.) Economic Growth
4.) International Trade
b. Four Questions
1) How do we measure these?
2) How well is the economy performing according to these measures?
3) How does economic performance influence national elections?
4) What influences economic performance?
3. Measuring Economic Activity
a. Inflation
1.) Definitions: CPI and Inflation Rate
2.) Formula: Inflation Rate
b. Unemployment
1.) Definition: Unemployment Rate
2.) Formulas
c. Economic Growth
1.) Definition: Growth Rate of Per Capita Real GDP
2.) Formulas
d. International Trade
1.) Definition: Current Account Balance
2.) Formulas
4. Economic Performance: The Historical Experience
a. The Historical Experience: 1959-1999
b. How are we doing today relative to the historical experience?
5. Does Economic Performance Affect National Elections?
a. Three tools
1.) Public Opinion Polls
2.) Iowa Electronic Markets
3.) Economic Models
a.)
Fairmodel
b. Presidential Election 2000 Predictions (Oct. 1, 2000 Predictions)
1.) Polls (actual clippings)
2.) IEM (screen shot)
3.) FairModel (calculate/show the equation)
c. Analysis
1.) How close were the three predictions to the actual results?
2.) Why were there prediction errors? What is missing?
a.) Microeconomic factors
b.) Other macroeconomic factors
6. Extension: Predicting Congressional Outcomes
a. Lewis-Beck Model
b. IEM Congressional Control Market
Lecture Notes
Macroeconomic Conditions: Measurement and Political Implications
Lecture notes are included as part of the Powerpoint presentation.