Answer Discussion and reply to a student reponse


  • Go to Use the Learn More button and review the tight  (contractionary) and easy (expansionary) tools of the Fed as well as the use of each. Briefly examine the Economic Dictionary and the Policy in Depth features.
  • Now play the game! You are the Fed Chairperson! You begin with 16 quarters, 4 years, then your job is up for review. You begin with rates at 4.5, inflation at  2.14% and unemployment at 4.75%.
  • Make decisions on interest rates for the 16 quarters. Summarize the changes you chose and explain your results. Do you still have a job? Why or why not?

Student reponse

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This was actually really interesting and fun to do! 

I started out by keeping the Fed Funds the same for the first quarter. I noticed that the natural unemployment rate would rise and the target inflation rate would lower slightly when I kept the Fed Funds at 4.00 for two quarters. As new occurrences would pop up, depending on how well the predictable economy was going to be, I lowered or raised the Fed Funds very slightly to keep the lines reasonably close to their target goals. I noticed when the economy was predicted to crash due or inflationary scenarios arose, it became harder to balance the goal lines. There was a point where deflation began to spiral out of control and it was hard to get it to come back. I played the game twice. The first time, I lost my job… oops! The second time, I played a little more around with making slightly more drastic measures in the Fed Funds. I was able to “be rehired” after that time! Hooray! 

This would definitely would not be the job for me… As I do appreciate the understanding of how the Fed Funds plays into so much of our economy, I wouldn’t want to be the one in charge of it… nor do I think anyone else would want me handling our country’s Fed Funds.. 😉  

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