> > Understanding Monetary Policy: in-class and out of class group activities.

Understanding Monetary Policy: in-class and out of class group activities.

This page authored by Ribhi Daoud, Department of Economics, Sinclair Community College.
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This material is replicated on a number of sites as part of the SERC Pedagogic Service Project

Summary

Following a jigsaw format, Class is divided into 3 teams; team 1 represents the Fed; team 2 represents financial institutions; team 3 represents the borrowers (spending and investing). Teams are provided with state of the economy (real or hypothetical). Team 1 conducts research then designs and implements appropriate monetary policy; The other two teams research and project their reactions to team 1(Fed policy). All three teams are researching and gathering information on policies, expectations, and reactions of the other teams. Not only team members interact, but also teams are divided into groups to interact and assess their activities, findings, and learning. Written reports can be provided by each team, by each group; or perhaps a written report can be done by each student. The jigsaw cooperative and interactive format provides students the opportunity to interact within teams and groups which will help students understand monetary policy through the actions and reactions of the Fed, Financial institutions, and the public.

At the completion of this activity, students should be able to understand how monetary policy works and the potential impact of monetary policy on the economy.

Learning Goals

Students will be able to understand how the fed, financial institutions and the public act and interact, and how monetary policy works through influencing money supply, credit access, and interest rates to impact aggregate demand and the economy. Students will learn and understand concepts such as Reserve Requirement, Actual Reserves, Required Reserves, Excess Reserves, Money Multiplier, Federal Funds Rate, Discount rate, Prime Rate, Open Market Operations, Term Auction Facility, Cyclical Asymmetry and the Liquidity Trap.

Context for Use

Group activities and class participation promote cooperative and active learning. Research reveals that students learn better when they are engaged. This activity is appropriate for college and university students learning monetary policy. This activity is likely to be more effective if class size does not exceed 30 students. The class should be divided into 3teams with each team size varies in accordance with class size. For example, class of 30 students would have 10 students in each team. Time required for groups to complete their work varies, but it should be feasible to be done in one week.

Description and Teaching Materials

Team 1 researches the structure, functions, and policies of the Fed. The team prepares a short written report of their findings that encompass what the team proposes the appropriate policy the Fed should undertake to help stabilize and restore a healthy economic condition. The report specifies the monetary tools to be used by the Fed and the likely outcomes. Also, this team speculates on the reactions of the other two teams.

Here are some of the relevant questions this team will address:
1. What is the current or projected state of the economy?
2. What is the appropriate monetary policy for current or projected economic conditions?
3. What monetary tools should be used and how should they be used?
4. What outcomes are expected from implementing such policy?

Team 2 conducts research and writes a short report on the structure, functions, and roles of financial institutions in the economy. The report specifies how financial institutions would react to the policy enacted by team 1(The Fed). As such, this team outlines the connection between financial institutions and the Fed within the framework of monetary policy.

Here are some of the relevant questions this team will address:
1. What is the current or projected state of the economy?
2. What policies the Fed is or will undertake to address issues facing the economy?
3. How should or must financial institutions react to Fed's policies?
4. How Fed's policies will impact financial institutions lending and credit policies?
5. In what ways financial institutions strategies may conflict with Fed's strategies and policies?

Team 3 investigates and writes a short report on how the public may react to the Fed policy, as well as reactions to the incentives provided by financial institutions. This team will explore the factors that impact public borrowing, spending, saving, and investing in capital projects.

Here are some of the relevant questions this team will address:
1. How to understand the current and projected state of the economy?
2. What policies the Fed is undertaking?
3. What are socioeconomic factors impacting decisions pertaining to borrowing, spending, investing, and saving?
4. How consumption, saving, and investing likely impact the economy?
5. In what ways consumption, saving, and capital investments may conflict with monetary policy?

Each team designates a team leader who insures that team members are participating and held accountable to their roles in the team work. Team leaders report to the instructor in the event issues are encountered. All teams engage in activities to address the questions facing each team as listed above. Team members communicate outside the class via email or face book or meeting in person to discuss their work and their progress. The instructor sets a specific date for teams to engage in class discussion and finalize their work. Up to this point, teams are not communicating with one another; only members within a team are communicating and collaborating. Once this in class team work is done, the instructor divides the class into groups with each group encompassing members from all teams. For example, if the class has 30 students, then there will be 5 groups with 6 students in each group. However, each group has 2 students from each team (given that there are 3 teams with 10 students in each team). In other words, each group of 6 students will have 2 students from team 1, 2 students from team 2, and 2 students from team 3.
The instructor will set a date for the groups to engage in class discussion. As such, each group has 2 students from each team, and all members within the group will convey, interact, and discuss what their respective teams have done.

Please note, the other possibility is to divide the class into groups of 3 students rather than 6 students in each group. 3 students in each group means one student from each team. In any case, students in each group do represent the 3 teams and can share and discuss what their respective teams have learned. Each student in every group now has exposure and understanding of the structure, components, and dynamics of monetary policy.

The instructor can then require group reports on what they have done and learned, as one assessment tool; another assessment tools is to require each student to write a report of their individual roles and experiences in interacting within teams and groups and what has been learned in conjunction with monetary policy.




Teaching Notes and Tips

- Instructor may assign teams and groups the task of researching the state of the economy in the real world, or may simply propose a hypothetical economy having a recession or perhaps encountering demand-pull inflation.
- Instructor should decide what sources and references teams and groups may use.
- Instructor should provide teams and groups guidelines pertaining to timelines and deadlines to complete the activity.
- Instructor provides teams and groups guidelines for in-class as well as out of class group interactions.
- Instructor designs the assessment or the criteria by which students will be graded and receive credit for the activity.
- Before groups begin their work, the instructor should see to it that all students understand all components and steps that groups will perform to complete the activity.

Assessment

- Instructor may ask groups or individual students to write and submit a report of their activities and findings.
- Instructor observations of students' in-class group discussion and interaction.
- Instructor may quiz members of each group based on the specific group report.

References and Resources

At the discretion of the instructor, students may be assigned specific links, or perhaps students can be referred and encouraged to consult the reference librarian within their institutions. As groups, students should be encouraged to interview bankers, economists, and politicians, whenever it is feasible. Students can and should research district Federal Reserve banks web sites.

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