Federal Reserve Simulation

The Economy is slowing down Businesses are not growing People are not buying goods or services What should THE FED do? Raise interest rates Lower interest rates

The Fed raised interest rates Before, Banks could borrow money at 3% interest Now, it’s 5% interest Result: Banks stop borrowing money Banks don’t have money to loan Now, Firms and households don’t have money The Economy has crashed. No Money. No Jobs. Another Great Depression. start over

The Fed lowered interest rates Before, Banks could borrow money at 3% interest Now, it’s 1% interest Result: Banks borrow more money Banks loan out more money Now, Firms and households have a lot of money The Economy rebounds. People spend money. This creates more jobs, and that creates more money next round

The Economy is doing okay But there is too much money in the economy Inflation is causing the value of money to go down What should THE FED do? Raise interest rates Lower interest rates

The Fed raised interest rates Before, Banks could borrow money at 3% interest Now, it’s 5% interest Result: Banks stop borrowing money Now, there is less money in the economy Inflation has stopped, and our money retains its normal value next round

The Fed lowered interest rates Before, Banks could borrow money at 3% interest Now, it’s 1% interest Result: Banks borrow more money Now, there is more money in the economy Inflation is out of control. Dollars are worthless. It takes a $100 to buy a soda. Instead of a wallet, people carry their money in wheelbarrow. start over

The Economy is growing Banks are borrowing a lot and loaning a lot Inflation is a serious fear, all the money in the economy might be worthless What should THE FED do? Raise bank’s reserve Lower bank’s reserve

The Fed raised the Bank’s reserve Before, Banks only had to keep $1 mil. in its vault Now, it must keep $1.5 million Result: Banks have less money to loan Now, there is less money in the economy Inflation has stopped, and our money retains its normal value next round

The Fed lowered the bank’s reserve Before, Banks had to keep $1 mil. in its vault Now, it must only keep $750,000 Result: Banks have more money to loan Now, there is more money in the economy Inflation is out of control. Dollars are worthless. It takes a $100 to buy a soda. Instead of a wallet, people carry their money in wheelbarrow. start over

The Economy is slowing down Businesses are not growing People are not buying goods or services What should THE FED do? Raise bank’s reserve Lower bank’s reserve

The Fed raised the Bank’s reserve Before, Banks only had to keep $1 mil. in its vault Now, it must keep $1.5 million Result: Banks have less money to loan Now, there is less money in the economy Inflation has stopped, BUT the economy slows to a stop. No one has money. No one is spending. Businesses can’t sell anything. The economy crashes. start over

The Fed lowered the bank’s reserve Before, Banks had to keep $1 mil. in its vault Now, it must only keep $750,000 Result: Banks have more money to loan Now, there is more money in the economy Citizens have money to spend. They buy more things. Companies make and sell more products. They have to hire more worker, and the economy grows. next round

YOU WIN