Name_____________________
You are the Fed Activity
http://www.frbsf.org/education/activities/chairman/index.html
Directions: Click on the “Play the Fed Chairman Game” link. When prompted, click on the “play
game” option.
You will act as the chairman for the Board of Governors of the Federal Reserve. You will be in charge
of monetary policy for the nation. You will change the Federal Funds Rate to see the effects on
unemployment as well as inflation. Remember that the Federal Funds rate is the interest rate banks
charge each other for loans. It is used by the Federal Reserve for implementing monetary policy.
Other interest rates tend to rise and fall with the federal funds rate. Use the chart to record what you
change the federal funds rate to and the resulting unemployment rate and inflation rate. Also record
the new unemployment rate as well as inflation rate. Some terms are listed below to help with this
activity, as well as to help you study for your test.
TERMS TO KNOW:
Contractionary monetary policy: To restrain inflation, the Fed can use its monetary policy tools to reduce the
growth of money and credit, which tends to raise interest rates and slow the growth of the economy. Monetary
policy in this case is said to be “tight” or “contractionary.”
Expansionary monetary policy: To fight recessions, the Fed can use its monetary policy tools to increase the
growth of money and credit, which tends to reduce interest rates and spur growth of the economy. Monetary
policy in this case is said to be “easy” or “expansionary.”
Open market operations: The tool most frequently used by the Fed to make adjustments in the availability and
price of short term funds to banks, and the most important policy tool, is the open market operations. This tool
is the responsibility of the FOMC. Open market operations involve buying or selling government securities for
the Fed. When the Fed sells government securities (bonds) back to the dealers, it removes this money from the
banking system. This decreases the money supply and is contractionary monetary policy. When the Fed
purchases bonds, this increases reserves in the banking system. This increases the money supply and is
expansionary monetary policy.
Quarters
Remaining
Federal Funds Rate
Unemployment Rate
Inflation
Rate
16
4.5
4.75
2.14
12
8
4
1
When you get to the end hit the PRT SCR button on your keyboard immediately.
If your unemployment rate is less than 5.25% and inflation rate is between 1.25-2.75% you will receive
10 extra credit points.
Paste into Paint and Print your result if you qualify for extra credit. Staple to this sheet and turn in.
If inflation is increasing what should you do to the federal funds rate?
Is this contractionary or expansionary monetary policy?