Monetary policy game
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The document discusses the Federal Reserve's use of an interest rate target, known as the Federal Funds Rate, to influence monetary policy. It describes the "Taylor Rule" formula that the Fed follows to determine adjustments to the interest rate target based on levels of inflation and unemployment. In the long run, when unemployment is at 5% and inflation is at the 2% target, the Fed targets the Federal Funds Rate at 2%. In the short run, the Fed lowers the rate during recessions to boost the economy and raises it during expansions to cool inflation.
Monetary policy game
- 3. Currently, the Fed follows an interest rate target. The target interest rate (Fed Funds Rate) is adjusted according to a ‘Taylor Rule” FF = 2% + (Inflation) - 1.25(Unemployment – 5%) + .5(Inflation – 2%) Long Run: When the economy is at full employment ( Unemployment = 5%) and inflation is at its long run target (2%), the Fed targets the Fed Funds Rate (Nominal) at Short Run: During recessions (when inflation is low and unemployment is high), the Fed lowers its target. During expansions, when inflation is high and unemployment is low), the Fed raises its target.
- 4. Sit in your groups
- 5. • Each group is been nominated as the new governor of Federal Bank of the United States. Has a task for you: He has asked to adjust your monetary policy such that following results will be achieved
- 6. Rules for the new Governor • Please go to this site -http://sffed- education.org/chairman/. • Complete task in 15 minutes. • You have 18 terms to complete. • If screen remains idle for some time game restarts and you loose your time. • You can not open other browser window until games.
- 7. • Credit System: • Completion before 15 min • Achieving accurate target: • Achieving relatively close target • Call Obama office member • Seek opponents strategy
- 8. Final step: • Top 2 scoring teams will be invited to stage. • Each team during each term has to note down the inflation and unemployment role, the hints, and why you decided to fix that particular interest rate. • The selected will randomly asked to explain any term and its implication. • Finally depending on answers madam will select the “Board Of Governors” which will be felicitated.
- 9. “Board Of Governors” is……
- 10. So make him happy
- 11. • Be ready with your 5 minute presentation. • While the top 2 governing bodies are screened out.