Introduction to Monetary Policy (Online Lesson)
- AS, A-Level, IB
- 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?
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.
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:
- The Inflation Calculator - find out what different prices from the past would be in today's money
- The Interest Rate Calculator - think about interest rates and their impact on borrowing and saving
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.
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.
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.
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.
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.