Federal Open Market Committee Simulation

Background: The Federal Open Market Committee (FOMC) is the Federal Reserve’s most powerful instrument of monetary policy-making. Meeting eight times a year, the FOMC discusses current and near-term economic and financial conditions, prior to making a decision to raise, lower or keep short-term interest rates the same. In order to help students understand the FOMC's decision-making process, the students will participate in the following simulation:

Part I - Research Phase (45 Minutes): The class will be broken down into groups of 4- 6 economists. Each economist is to prepare a position and presentation discussing  an analysis of the current conditions within the economy.  the prospects for economic, financial, and international conditions for the near future  an identification and discussion of the economic issues of special concern at the present time, or in the near future.  A recommendation as to whether short-term interest rates should be raised, lowered, or kept the same.

Students are to utilize the following FED website (http://www.ny.frb.org/education/bythe.html#gdp) for research. Simply copy and past the site address.

Note: Students seeking to earn credit for this portion of the simulation must submit in writing, their research and prepared notes. (25 points)

Part II – FOMC Meeting Simulation (30 minutes):

1. Teacher will choose form the group a FOMC Chairperson. 2. Chair will call the meeting to order. 3. Economic advisors present their findings. a. an analysis of the current conditions within the economy. b. the prospects for economic, financial, and international conditions for the near future c. an identification and discussion of the economic issues of special concern at the present time, or in the near future. d. A recommendation as to whether short-term interest rates should be raised, lowered, or kept the same. 4. General discussion as to the direction the FOMC wants to take with regards to interest rates. 5. Vote 6. Prepare a quick summary of findings that will be shared with the class during the debriefing period. This summary should be in the form of a brief press release, and should include all group members names. (25 points) Part III – Simulation Debriefing (20 minutes): After the simulation is completed, as part of the whole-class discussion, have the groups explain their answers to the following questions:

1. What did you learn about the way the Federal Reserve develops monetary policy from this simulation? 2. What evidence was presented here to suggest that short-term interest rates should be raised? 3. What was the strongest evidence for raising interest rates? 4. What evidence was presented here that short-term interest rates should be lowered? 5. What was the strongest evidence for lowering interest rates? 6. What arguments could you make for keeping short-term interest rates at their current level?