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Government and the Economy
Session 2: Fiscal and Monetary Policies
Materials
- A balloon
- Internet access
Instructional Activities
NOTE: The following Web site may be helpful in the study of economic cycles:
< http://usinfo.state.gov/products/pubs/oecon/chap7.htm>.
- Review the content from the previous session.
- Ask students to raise their hands if they have a savings account. Ask them if they know how much interest their savings account is earning and if they know what determines what interest rate they will earn.
- Ask students to define the term fiscal. Discuss this definition.
- Explain that the governmental fiscal and monetary policies change in order to stimulate or slow down the economy. Illustrate this concept with the following demonstrations:
• Begin to blow up a balloon. Just as the balloon becomes fully inflated, stop and explain that the balloon is in danger of over-inflating. Ask students what will happen if more air is blown into the balloon after it has been fully inflated. After they answer, ask them what you can do to prevent it from bursting. Explain that this is what the government does with their fiscal and monetary policies. The government takes action when the economy is deflated or flat to cause it to begin to inflate and then takes other steps to prevent over-inflation.
• Ask students if they have ever observed a heart monitor. Ask them to say which is better, a heartbeat that is shown on the monitor as up and down in waves or a heartbeat that resembles a flat line. (Illustrate as necessary). Explain that the economy is much the same. A flat line depicts an unhealthy economy. The economy needs small fluctuations; however, big fluctuations are not healthy, either. So just like the doctor takes actions to stabilize a patient’s heartbeat, the government takes action to stabilize the economy.
- Ask students to suggest ways the government stabilizes the economy. After some discussion, explain that they will discover the answer as they work through the next unit.
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