Consider all possible action plans and solutions to the issue you are researching.

Consider all possible action plans and solutions to the issue you are researching.

Project Steps

This activity has two parts.

Part One: Consider
Consider all possible action plans and solutions to the issue you are researching. Ask what your community can do to address the issue you have chosen. What can you personally do? Are there multiple perspectives on the best way to address the problem? Conduct research in your local community to answer these questions.

Part Two: Analyze
Consider the consequences each potential solution may have on all levels of your local economy. What are the costs and benefits of your potential action plans? What are the externalities, both positive and negative, of your chosen solutions?

Use the Research Chart to document your data, take notes, and track your sources of information.



If you have ever asked a friend or family member for a loan, you know how important a few dollars can seem when you want them. Watch this video to see just how great a difference a few dollars can make to a person’s life. Press the play button beneath the video to begin.


06.03 Microfinance Video—Text Version

Poverty is a kind of a darkness around you. You don’t see any hope, any ray of hope. You live every day the same way, in the darkness. You don’t have a future.

In the early 70s, a young Muhammad Yunus, then an economics professor, left the city to do research in local villages like this one.

Here I am teaching elegant theories of economics in the classroom and people are dying outside the classroom, and we have nothing to do about it.

He found people making many beautiful products, yet they remained desperately poor. To an economist it didn’t make sense, something was missing.

But, if you look around, who are the people really working? It’s the poor. They work their pants off.

Professor Yunus realized that the only way that the villagers could buy supplies to create small businesses was with high interest loans from unscrupulous money lenders. There was no other option.

And, money lenders were imposing very terrible conditionalities on them. Like you have to sell your product to me at the price that I decide, etcetera, that kind of thing.

In one village Muhammad Yunus found that he could provide life-changing loans to forty-two people. They would cost a total of twenty seven dollars, an average of 64 cents each. He personally made the loans.

And I was shocked! Here we talk about millions of dollars and billions of dollars of development assistance to help the economy grow and so on. We never paid attention to people who needed such a small amount of money.

That was the beginning of an idea that grew into the Grameen Bank, a bank for the rural poor. In the language of Bangladesh, “grameen” means rural. It’s also the idea for which Muhammad Yunus and the Grameen Bank were awarded the Nobel Peace Prize in 2006. The business of the Grameen Bank is microcredit, small loans to poor people enabling them to create businesses of their own.

We have a very strange financial system in the world. More than two-thirds of the world population is rejected by the financial system, so it’s a system which is limited to very privileged people. Like everyone in their village, Minera and Denislahm were far from privileged. They watched as their neighbors prospered from the Grameen Bank loans. Finally, they decided to take the risk themselves. The system is unusual and simple. A loan requires no collateral and no legal contract, and 96 percent of the loans in this mostly Muslim country are made to women.

Giving loans to women in Bangladesh is not easy. Somehow their religion is interpreted here as women should stay home. So when we tried to give loans to women, a husband became the first opponent of that loan.

In time, things changed.

Money that went to the families through women brought so much benefit to the families. Women were very cautious with their money. When they start earning income, children become the first beneficiary of that income. And women had longer vision; they wanted to build up to something. Men always wanted to enjoy themselves right away, rather than wait for future and so on.

With Minera’s loan from the Grameen Bank, she and Denislahm bought a loom. Denislahm taught Minera to weave and they began to create jamdanis, hand crafted traditional saris. It’s a difficult business because the competition is fierce, the work is exacting and rigorous. It takes a week to make each sari.

(Translated subtitles while Minera speaks)

But the system is designed to work. Each week the Grameen borrowers gather in Center Meeting to pay their installments directly to a regional Grameen banker and to discuss their common problems.

Center Meeting brings people together. For them it’s one opportunity to get to know their neighbors and interact with them. It’s a social activity for them. Some people say it’s as important as the loan itself. They never had so many friends before, now they have friends.

Key elements of the system are peer pressure and individual pride. Initial loans are always for income-producing projects, so there will be money for repayment. Loans are made for livestock, poultry, and agriculture, but also for grocery shops even though traditional Muslim society discourages the participation of women in the marketplace.

Microfinance is a newer trend on the worldwide economics scene. Around the world, people are helping make small loans that make a big impression and result in many externalities for all parts of our circular-flow diagram.


Local Impact

Banks offer loans in your community to help people purchase homes and start or expand businesses. Consider that a new department store, built through a bank loan, not only may generate profit for the company but also employs dozens of local residents. These employees may now be able to afford more recreation goods and services and perhaps obtain loans to buy larger homes.

Watch this video about eminent domain to learn about externalities with a local impact. Press the play button beneath the video to begin.

06.03 Eminent Domain Video—Text Version

A man’s home is his castle. Okay, I know it sounds kind of cliché, but for anyone who actually owns a home it really is true. Homeowners take great pride in the fact that they can do whatever they want with their homes, without interference from anyone else, including the government. But are they right? In fact, there’s something in the constitution called “eminent domain” that gives governments the power to take your property even if you don’t want to sell.

Eminent domain.

Define “eminent domain”?

Eminent domain?

I’m gonna let him speak first.

Like, this is mine right here, right now. Do you know what eminent domain is?

Isn’t that when the government can take whatever they want?

It sounds like M&Ms. M&Ms domain.

Eminent domain is the concept that allows government to take property and pay you for it.

The founding fathers wanted to create a nation of free people, and they wrote the constitution to protect individual rights from government power. The founders believed that one of the most important individual rights is the right to own property, but the founders also made an exception to this rule. The Fifth amendment to the U.S. Constitution states that governments may take private property but only under certain conditions. The property must be put to a public use and the property owners must be provided just compensation. This practice is called “eminent domain.”

An example of this is the construction of the interstate highway system. Eminent domain was used extensively whenever property owners would refuse to sell their property to the government.

Throughout most of our country’s history, local governments have used the power of eminent domain to take private property in order to convert the property to public uses like schools, hospitals, and roads. But in the 1950s, the city of Washington, D.C. made plans to use eminent domain for a different reason. The city wanted to force out property owners and tear down old buildings and houses in order to build a nicer community. Some property owners objected, arguing that this kind of urban renewal project was not a legitimate use of eminent domain. In 1954 the U.S. Supreme court voted in favor of the city, and Washington, D.C. officials used eminent domain to rebuild the rundown neighborhood from scratch.

Ever since then, governments have used eminent domain for more than just public uses like roads and schools. They’ve also used eminent domain to transfer property from one private owner to another private owner in the name of economic development.

I think a city has a responsibility to maintain the housing stock and to make sure people live in good quality homes.

Bruce Broadwater is city councilman and a former mayor of Garden Grove, CA.

Redevelopment feeds on itself. I mean, basically it pays itself back, and it’s just such a great tool to use, and eminent domain is a part of that.

Unfortunately, over the history of our country, governments have taken to using eminent domain for private uses.

Stephen Greenhut is a journalist in Southern California who had written extensively about eminent domain use.

It takes private property from homeowners such as these and give it to big developers, and due process means reading about the project in the newspaper after it’s already been approved. And just compensation, well, cities often short change the owners. They give lowball offers; they don’t pay the lawyer fees. They call it a tool in their arsenal, which is kind of like calling a machine gun put to someone’s head a tool, but that’s the basic idea.

The use of eminent domain is a delicate tool, but it is a tool. It helps keep a community clean. It helps keep a community vibrant. It’s a good tool, and it definitely shouldn’t be taken away.

We are not talking about unsafe terrible neighborhoods; we are talking about neighborhoods that some developer might covet to build something that pays more in tax revenue than what is currently existing.

Eminent Domain and the Fifth Amendment


The loss of personal and private property is an externality of the eminent domain clause of the Fifth Amendment. The journalist in the video focuses on negative externalities of eminent domain, including personal loss and the unintended effect of governments interpreting the use of eminent domain to seize property for commercial use. Some people, like the mayor in the video, point out the positive externalities of using eminent domain in this manner, such as beautifying old neighborhoods and generating additional tax revenue that will benefit citizens.

Watch the video clip below to see how eminent domain affected Princess Wells. Press the play button beneath the video to begin.


Princess Wells Video—Text Version

Princess Wells owns a home and business in the seaside community of Riviera Beach, FL. Mayor Michael Brown and city officials are leading efforts to re-develop 800 acres of water-front property, where Princess Wells and 5,000 other people live.

My house, we’ve lived there for over 25 years. Hard work. Children. Love. We built the house in approximately 30 days. When you build it yourself, I mean, it’s awesome. It’s important to you. It’s a nice quaint middle class neighborhood. We are like prime property. You know, we are so close to the ocean. It’s wrong to be able to come out and take it, because I worked hard for it. If they take it by eminent domain, therefore they won’t have to pay us what our house is worth. And they can take that same property and they can sell it for millions. And I had no idea that one day they just would not want me to be here, just because I don’t have enough money.

If redevelopment plans go forth, Princess Wells will lose her home and her business as well.

If I have to move my business, I’ll have to do everything from ground level one all over again. mayor Brown has stated that they are going to continue. And that they are not going to stop. The threat of eminent domain still looms.

Lesson Summary

Eminent domain and loans, including microloans, illustrate how externalities affect us in ways that are tangible in our daily lives.


Imagine that Target® builds a new store in your town. This single event can trigger a series of externalities that can both positively and negatively affect the four major players in the circular flow. Can you identify which externality matches each player?

06.03 Circular Flow Project—Research Chart

Use the chart below to guide your research. Answer the questions presented for the issue you have chosen. Be sure to take notes, including the sources of information.

06.03 Research Notes

Subject Guiding Questions Your Responses
Consider all possible solutions or alternatives.


  1. Give three possible solutions to the economic issue you are investigating.
  2. Why would some people oppose the solutions you have chosen?
Determine the consequences of these solutions—both intended and unintended.
  1. What is one positive or negative externality presented by this issue? Refer to your circular-flow diagram for help.
  2. What incentives motivate individuals, businesses, and government to act on each possible solution?
  3. What is one externality, positive or negative, that could result from each possible solution?



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