Editor's note: This is a letter from Khalid Akhal, a high school teacher living in south China's Hainan Province.

This year was not a normal year by any means. But finally it came to an end with students in China taking their final exams in all subjects including the Advanced Placement (AP) courses taught in some high schools. In their AP Macroeconomics final exam, students of a small high school in China's southern island province Hainan were surprised to see a question about the economic consequences of COVID-19 and the possible remedies for the macroeconomy. After all, they are only high school students!

However, as their teacher, I think their level is up to the task and thus challenged them to critically analyze and discuss U.S. President Biden's fiscal plan to overcome the negative consequences of COVID-19 on the American economy. Not surprisingly, the students successfully modeled the macroeconomy of the United States in the short run and in the long run. The students explained that COVID-19 shifted the aggregate demand in the whole economy dramatically, causing a severe negative output gap. They concluded that the suitable remedy to fix the economy is more spending from the government side to compensate for the decline in consumers' and firms' spending.

Up to this point, both the high school students and the U.S. president had the same thinking. Biden announced a massive $1.9 trillion stimulus plan in March this year. The only catch is that he plans to give this money as direct payments to American households with extra benefits for the unemployed.

To any normal person, there is no problem with the president's overly kind gesture, but in fundamental economics, this is a big mistake and the high school students on the small Chinese island knew it very well. The idea here is very simple. Whenever money is spent in the economy it will multiply several times depending on how much the receivers of the money will save every time. In macroeconomics, this is called marginal propensity to save (MPS). The higher the MPS, the less money will multiply in the economy. This is exactly why Biden's big plan is a big mistake. The cash-deprived, anxious American households will try to save as much as they can out of the money they will receive, which will lead to a very high MPS, and the initial effect of the gigantic spending will soon evaporate with very little or no effect.

In their final exam, the high school students alternatively suggested spending the money on infrastructure projects or – even better – on advanced technology programs. One of the students wrote: "The government can spend all the money on new energy projects, which will be fully used to finance multiple operations across the country and that means hiring workers, technicians, and engineers, thus creating a lot of jobs." Another student elaborated: "When new employees receive good contracts and salaries, they will be more confident about the future so they will start spending more money on houses, cars, and other products. The producers of these products will also hire more people to meet the growing demand. Ultimately, the positive cycle will recover the economy in the long run."

It is rather interesting how those young high school students seemed to outsmart Mr. Biden. But the reality is that the U.S. president is a very smart person, except he thinks in another way. Biden does not seem to be interested in economics as much as he is in politics this time! He is simply seeking to move the economy a bit and the voters a lot. He wants to please his voters with easy "HongBaos."

Khalid Akhal

A high school teacher in Hainan

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