Hands on Banking

Today, we will start our economic unit.  You will start with clicking on the following link:
Hands on Banking

When you have passed the test, you may play the Federal Reserve Chairman Game

The Federal Reserve is able to influence the economy through interest rates.
When the unemployment rate (percentage of people not working) is high, the Federal reserve will lower interest rates.  This causes people to spend money rather than save it in a bank account with low interest rates.  When people spend money on products, businesses are able to make more money, and possibly hire more people.  It also leads to people and businesses getting new loans from banks because they will pay a lower interest rate on loans.  When people borrow money for cars, homes, etc. it tends to lead to more jobs and helps to lower the unemployment rate.   Businesses are also more likely to get loans to expand their business and hire more people.  The ideal unemployment rate is 5%- That means 95% of people who can work, are working.  Those people get paid to work, spend their money on products and help businesses keep the economy running.

When the unemployment rate is low (below 5%), and lots of people are working and have money to spend, the price of goods tends to rise (inflation).  The ideal inflation rate is 2%- that means the cost of products rises by 2% in a years time.  If the rate of inflation rises, the Federal Reserve will raise interest rates.  When this happens, people tend to put their money in a bank where they can receive a higher interest rate rather than spend it.   It also means that people and businesses are less likely to get loans from banks because they know they will have to pay a higher interest rate.  With less money being spent in the economy, the unemployment rate will tend to rise- less money, fewer jobs.

When you play the Fed Game you will need to watch the economy closely to raise or lower interest rates to keep the economy running smoothly!