Online Lessons

Introduction to Monetary Policy (Online Lesson)

Level:
AS, A-Level, IB
Board:
AQA, Edexcel, OCR, IB, Eduqas, WJEC

Last updated 28 Apr 2020

In this online lesson, students will cover the basics of monetary policy, focusing on interest rates.

WHAT YOU'LL STUDY IN THIS ONLINE LESSON:

  • What is meant by monetary policy
  • The nature of interest rates, and the variety of interest rates in an economy
  • The interest rate transmission mechanism (via consumer and investment spending, international trade, and asset prices)

Additional teacher guidance is available at the end of this lesson.

Thank you to Nicky King and Jon Clark for their contributions to this lesson.

HOW TO USE THIS ONLINE LESSON

Follow along in order of the activities shown below. Some are interactive game-based activities, designed to test your understanding and application of monetary policy and interest rates. Others are based on short videos, including activities for you to think about and try at home.

If you would like to download a simple PDF worksheet to accompany the video activities, you can download it here: Intro To Monetary Policy. You can print it off and annotate it for your own notes, or make your own notes on a separate piece of paper to add to your school/college file.

ACTIVITY 1 - HOW DO WE BORROW?

It's really important to consider how households make their decisions regarding borrowing, not only for your A level in Economics, but also in real-life! Have a go at this "Credit Check" activity - you can download it here.

ACTIVITY 2: VIDEO - MONETARY POLICY KEY TERMS

In this video, we cover the basics of different aspects of monetary policy, and introduce some of the key terminology in relation to interest rates. Can you score 100% on the 60 Second Challenge at the end of this video?

Intro to Monetary Policy Video 1 - key terms for interest rates

ACTIVITY 3: VIDEO - INTRODUCTION TO INTEREST RATES

In this video, we look at what is meant by an interest rate and the different types of interest rate we might experience in an economy, along with some relevant UK data and a chance to practise some of those all-important quantitative skills! We'll also briefly look at the meaning of real interest rates and negative interest rates.

Intro to Monetary Policy Video 2 - overview of interest rates

ACTIVITY 4: GAME - INTEREST RATE QUANTITATIVE SKILLS

Carrying out some calculations in relation to interest rates is a good way to practise percentages, one of the required quantitative skills for A level Economics. You can do this in the game below:

ACTIVITY 5: ADDITIONAL READING AND RESEARCH ON THE BANK OF ENGLAND

There are lots of great resources on monetary policy on the Bank of England website. Here are two to get your started:

Once you've had a go at this, why not take a bit of time to explore the educational resources on the Bank of England website in a bit more detail?

ACTIVITY 6: VIDEO - INTEREST RATES AND CONSUMER/INVESTMENT SPENDING

In this video, we explore the meaning of a "transmission mechanism" and apply it by considering how changes in Bank Rate affect consumer and producer spending in an economy. We also introduce the terms inflationary and deflationary policy.

Intro to Monetary Policy Video 3: interest rates and consumer/investment spending

ACTIVITY 7: VIDEO - INTEREST RATES AND INTERNATIONAL TRADE

In this video, we build on your knowledge of transmission mechanisms, and explore how changes in Bank Rate affect international trade via changes in the exchange rate.

Intro to Monetary Policy Video 4: interest rates and trade

ACTIVITY 8: GAME - EXCHANGE RATE SYSTEMS

Different economies have different types of exchange rate system, and this influences the effectiveness of changes in the Base Rate when we think about the transmission mechanism linking to international trade. In this interactive game, you can test your knowledge of different exchange rate systems.

ACTIVITY 10: VIDEO - INTEREST RATES AND ASSET PRICES

In this final video for this online lesson, we explore the last part of the interest rate transmission mechanism - the link between changes in Bank Rate and asset prices. There is also an opportunity to practise writing analytical paragraphs.

Intro to Monetary Policy Video 5: interest rates and asset prices

ACTIVITY 11: GAME - IMPACTS OF INTEREST RATE CHANGES

In this game, you get the chance to practise your new knowledge of how changes in Bank Rate affect different economic variables.

ACTIVITY 12: THINKING ABOUT SAVINGS RATES

This worksheet-based activity requires you to download this activity mat on UK Savings Rates. This is a synoptic activity, which means that it connects together various aspects of your economics course. Solutions are provided in this download - check your own answers once you are finished, and make a note of anything you didn't quite get right.

EXTENSION ACTIVITY

If you are looking for a challenge, then why not have a go at this Monetary Policy Crossword? You can download it here.

ADDITIONAL TEACHER GUIDANCE

This lesson comprises:

  • Around 35 minutes of guided video time, spread over 5 videos
  • Around 20 - 25 minutes of student activity and thinking time embedded within those videos
  • An initial starter activity, exploring the different ways in which we borrow (this would also be suitable for Business Studies students or for PHSEE lessons)
  • A synoptic activity, looking at different aspects of economics that can be connected with savings rates
  • An interactive game designed to support student quantitative skills on interest rates and percentages
  • 2 additional interactive games, exploring impacts of changes to Bank Rate, and different exchange rate systems
  • A task encouraging students to explore the educational resources on the Bank of England website
  • An extension task of a tricky crossword - you can find the solutions to this here

We anticipate that the "core" of the lesson would take approximately 90 minutes, although students may want to spend longer than this playing the games and carrying out wider reading.

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