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Grade Inflation

Jul 16, 2011 • Behavioral Economics, Demand, Supply, and Markets, Developing Economies, Economic Debates, Economic History, Macroeconomic Measurement, Money and Monetary Policy, Thinking Economically • 231 Views    No Comments

Recent research indicates college students are studying less. Between 1961 and 2003, full time college students diminished their study time from 40 to 27 hours a week. And yet, they have been getting higher grades. In 1940, 15% of all students got A’s. In 2008, the proportion was 43%.

Are we smarter? Researchers think not. Instead, they attribute the grades to more “consumer awareness” among professors. Professors who give higher grades are more likely to receive better student evaluations. Their course sign-ups rise. Their students have a better chance of getting into competitive graduate programs.

There is only one problem. A grade conveys information. If 43% of all grades are A’s, what does it mean when a student gets an “A” in a course? Is that student doing the best work?

The Economic Lesson

During the 1950s, Brazil printed a lot of money to pay for building Brazilia, their new capital. With more currency circulating, too many Cruzeiros were chasing too few goods and inflation developed. Expecting it to continue, businesses raised prices, workers wanted higher wages, and consumers made purchases sooner. The result? Price and wage hikes accelerated. Finally, by the early 1990s, according to Planet Money, the monthly inflation rate was 80%. That meant that during 1 month, the price of a $1.00 carton of eggs would become $2.00.

Like grades, prices convey information. When a monetary system is working well, a higher price means something–maybe better quality? Popularity? Shortages? With runaway inflation, Brazilian prices became meaningless.

Brazil finally solved its inflation crisis by introducing an entirely new currency. Will grade inflation require the same solution if we want to “price” human capital more accurately?

An Economic Question: Why and how would you control grade inflation?


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