Lesson 5
Monetary Policy in the Recent Financial Crisis

Actions are taken by the Board of Governors of the Federal Reserve System (the Fed) to create a stable macroeconomy. Part 1 of the lesson places the student in the role of an economic analyst diagnosing the economy by viewing 2007-2009 data regarding the Consumer Price Index (CPI), unemployment, and real GDP growth. Students are likely to conclude from their analysis that monetary policy tools were needed to correct for the crisis. In Part 2 of the lesson, students will be introduced to tools historically available to the Fed as well as to new tools created by the Fed. Student teams will serve as members of the Board of Governors and make monetary policy decisions by choosing from among traditional and new tools. Students will evaluate the action by the Fed to pay interest on required and excess reserves held by banks and observe and analyze the effects of the monetary expansion on the Fed's balance sheet. For advanced students, three extension opportunities with supporting materials are provided.


  • Discount Rate
  • Federal funds rate
  • Inflation
  • Monetary Policy
  • Open Market Operations
  • Recession

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Essence E.
"It's much easier to undertsand when you put it that way!"

James R.
"Overall, I thought this was an excellent lesson. It provided an excellent overview of Macro indicators, and the 3 traditional Tools of the Fed. Also, this is the first lesson I have found that covers the new tools used by the Fed, and I believe this fills an important need in teaching the Fed and the financial crisis."