Friday, January 15, 2010

Stock Market Simulation

Summary: Buy high. Sell Low.

Many AP Macroeconomics teachers recommend The Virtual Stock Exchange as a simulation. Veteran teachers recommend setting ground rules before the game begins such as the number of trades that must be made each week, no short selling, or buying on margin. Perhaps students have to spend at least 50% of their portfolio.

I am a believer of the efficient market hypothesis so I don't get excited about stock market simulations. But could you use the stock market asset valuations to show the nominal money demand? If a stock is returning 15%, do students allocate more of their portfolio to stocks and chose to hold less in liquid assets? Does an increase in stock valuations increase consumer wealth and move aggregate demand? Are stock prices out of line with dividends?

How do you use the stock market in your class?

About the Author: Mike Fladlien is an AP Economics teacher from Muscatine High School in Muscatine, Iowa. He is an author and blogs Mikeroeconomics.


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