Monetary Policy Simulation - A memorable way to visualize macro policy

This collaborative simulation of the three tools of monetary policy helped my students visualize their effects on the economy, covering content such as:

-expansionary and contractionary monetary policy

-the effects of changing the discount interest rate, the reserve ratio, and open market operations

-the relative efficacy of the tools in different situations

Students assume the role of the central bank, private banks, or consumers. The simulations starts with the economy in recession and a scarcity of money in supply. As the economy progresses through the stages of the business cycle, the central bank uses all three tools of monetary policy across six rounds to influence the economy and achieve macro objectives. Printed pieces of money and bonds flow between the participants so that students can memorably see the results of monetary policy.

This activity also illustrates the difference between ample and limited reserves, a new part of the AP Macro syllabus.