Transcript Monetary Policy - Effingham County Schools

Clickers! 
1. Select the best definition of the
unemployment rate.
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A) labor force/# unemployed
B) # unemployed/ labor force
C) civilian labor force/# unemployed
D) # unemployed/ civilian labor force
2. Who is unemployed in this list?
• A) a stay-at-home-mom
• B) a ten yr-old kid
• C) a guy who, after looking for a job for 6
months, gave up and moved in with his
parents
• D) a retired person
• E) None of the above.
3. Population = 100
Employed = 40
Not employed but looking = 10
What is the unemployment rate?
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A) 10%
B) 20%
C) 30%
D) 40%
4. Population = 50
Employed = 30
Unemployed = 10
What is the unemployment rate?
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A) 15%
B) 25%
C) 30%
D) 33%
5. Population = 100
Employed = 45
Not employed but looking = 5
What is the unemployment rate?
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A) 10%
B) 11%
C) 20%
D) 5%
6. Population = 60
Employed = 20
Not employed but looking = 20
What is the unemployment rate?
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A) 100%
B) 66%
C) 50%
D) 33%
7. How are discouraged workers (people
who want to work but have given up
looking for a job) counted when measuring
the unemployment rate?
• A) They count as unemployed but not in the
labor force.
• B) They count as unemployed and are part
of the labor force.
• C) They are neither in the labor force nor
unemployed.
8. Many people have part-time jobs but
want full-time work. When measuring
the unemployment rate, these people
are counted as
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A) unemployed & in the labor force.
B) unemployed & not in the labor force.
C) employed & in the labor force.
D) employed but not in the labor force.
9. Population = 100
Working full time = 60
Children = 5
Stay-at-home parents = 5
Prisoners = 10
Not working, but looking for a job = 20
What is the unemployment rate?
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A) 20%
B) 25%
C) 30%
D) 35%
10. The country of Bagonia has an
unemployment rate of 5%. The
country of Krakosia has an
unemployment rate of 10%. Which
of the following must be true?
• A) Krakosia has a higher rate of inflation.
• B) Krakosia has twice as many unemployed
people as Bagonia.
• C) Bagonia has a smaller labor force than
Krakosia.
• D) None of these is necessarily true.
2 Countries
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Bagonia
Employed: 95
Unemployed: 5
Labor Force: 100
U.Rate: 5%
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Krakosia
Employed: 9
Unemployed: 1
Labor Force: 10
U.Rate: 10%
Assignment
• Take a moment to think of a reason why
someone might lose their job.
• Be specific!
Kinds of Unemployment
• Frictional: between jobs (it’s personal)
• Structural: changes in consumer tastes or
industry operations; skills don’t match jobs
(jobs not coming back)
• Cyclical: changes in business cycle (jobs
will come back)
• Seasonal: changes in weather/seasons
Unemployment Worksheet
• Follow all directions on handout.
Monetary Policy
Game Plan
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Interest Rates
Money Supply and Interest Rates
Bonds
Bonds and Money Supply
Monetary Policy (The Whole Picture)
– The Fed-Bonds-Money Supply-Interest RatesThe Economy
When are we more likely to buy
things...
when the price is low or when the
price is high???
Interest Rates
• Are the PRICE of money.
• When do we borrow more money…
– when interest rates are low or when they’re
high???
• LOW, good!
Interest Rates
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If interest rates are low...
and people borrow more money...
then more money is spent...
and more stuff gets sold and produced.
Picture Time
• Divide a sheet of notebook paper into six
squares. Write “Monetary Policy” at very top.
• Number them 1-6 (1,2,3 at top, 4,5,6 at bottom).
• In box 4, draw
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a person borrowing money from a bank
OR
a person leaving the bank with borrowed money
OR
a person expressing the intent to borrow money from
the bank
In box 5
• Draw the person who borrowed the money
– as they buy something with that borrowed
money.
– OR
– enjoy the thing they just bought with borrowed
money.
BUT
• More money in circulation can eventually
result in…
• INFLATION.
QUIZ
Grab Your Clickers!
Interest rates are the price of
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A) money
B) inflation
C) unemployment
D) real GDP
Consumers like
• A) low prices
• B) high prices
Borrowers like
• A) low interest rates.
• B) high interest rates.
Lower interest rates mean
• A) more money in circulation.
• B) less money in circulation.
If rates are kept too low...
• A) inflation could result.
• B) deflation could result.
A Question
Bankers and Money
The money supply and interest
rates
• Story Time!
– The farmer who had a healthy crop.
• Story Time!
– The banker with too much money.
The money supply and interest
rates
• When the money supply goes up, interest
rates go down.
• …and vice versa!
QUIZ
When the supply of something
rises, the price of it usually goes
• A) up.
• B) down.
When the supply of money
increases, interest rates
• A) rise.
• B) fall.
Interest rates go up when
• A) the money supply goes up.
• B) the money supply goes down.
Picture Time
• In box 2, draw
– a banker, looking inside his vault, which is filled with
money.
– He should look sad/worried/anxious.
– Draw a thought-bubble in which he expresses his
frustration, &
– …his intent to lower his interest rates.
In box 3
• Draw a picture to show interest rates falling.
Bonds
• Bonds are loans.*****
• Treasury bonds are loans to…
– the Federal Government.
• The government issues bonds whenever it
spends more money than it collects in taxes.
– (Which is pretty much every year.)
Bonds
• The government will borrow money from
anybody, so…
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Americans hold bonds.
The Federal Reserve holds (a lot of) bonds.
Foreigners hold bonds.
Private banks hold bonds.
After loaning the government
$$$
• You are left holding a bond.
• If it’s a 10 year bond, you’ll get paid
interest each year.
• And receive the “purchase amount” back in
10 years.
OR...
• Maybe you don’t want to wait 10 years.
• Something comes up, and you want your
cash now!
• In that case you could sell that bond to
someone else.
How the Fed controls the money
supply...
(drum roll)
The Fed buys or sells bonds in
the open market
• Hence the name (Federal Open Market
Committee).
• Remember, people can sell their bonds to
other people, or to the Fed.
• OR buy bonds from other people or the Fed.
What can the Fed do to increase
the money supply??
Buy or sell bonds??
Draw it in box #1.
In box 1
• Draw the Fed buying bonds.
– Money leaving the Fed
– Bonds going towards the Fed
– This could be shown with hands/arrows/etc.
The Fed buys or sells bonds in the open
market
• The Fed can print money, and BUY bonds from
the public.
• This INCREASES the money supply.
• Which makes interest rates go ___
• which makes people/businesses borrow MORE
• AND spend MORE (C & I go up)
• so AD increases, and Real GDP increases
• and recession ends (yay!!)
In box 6
• Draw an increase in production
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everybody’s working
unemployment’s low
recession’s over
things are generally better
people are generally happier
it’s a happy ending!
But, as more money gets
printed...
• And people start spending those extra
dollars…
• inflation can result (boo).
Think of a dam…
• A dam controls the
flow of water
downriver.
• Releasing too much
water would cause
flooding.
• Too little water would
cause a drought.
The Fed is like a dam...
• & the river is the $
supply.
• Too much $ causes
inflation.
• Too little $ causes a
recession.
Federal
Reserve
Money
Supply
Strong-Like-Bull Rule
• To get the economy going,
Bu.L.L.
• (Buy bonds, Lower federal funds rate, Lower
discount rate)
So, to fight inflation, the Fed
should...
• Sell bonds.
• Which will shrink the money supply,
• and make dollars more valuable.
Run the Fed Game
Google “fed chairman game”
• You must be re-appointed 3 times.
• At first, Mr. Cook will be the only verifier.
• As students finish the challenge, they will
be made verifiers.
• The first two students to finish the challenge
will get candy!
Relationship between
unemployment, inflation, and
Real GDP.
Assignment
• Compose a skit in which someone is losing
their job.
• You will act out your skits in front of the
class.
• The class will identify which type of
unemployment your skit represents.
• Each group will compose one skit.
• You will have about ten minutes to write
your short skits.