Monetary Policy - Lesson Demonstration (Transcript)

Cheryl Morrow, 12th grade economics teacher, Spain Park High School, Hoover, Ala.: This particular lesson is called "The Trial of Monty Terry," and I'm actually putting monetary policy on trial. And I have taken this particular, very difficult aspect of economics and put a person with this role. So the actual defendant, Monty Terry, will have testimony that he is not guilty of what he is being charged with. There will be two attorneys, a prosecuting attorney, a defense attorney. They will call witnesses that will support both the defendant and the prosecution. And this particular lesson is something that I created as a part of the Atlanta Fed's "Lesson of the Year" contest several years ago.

Demonstration, part 1
Bailiff: All rise.
Judge: You may be seated. Today this court will hear the case of the People vs. Monty Terry. Count one of the indictment is that Monty Terry has control the supply of money in the economy. Mr. Prosecuting Attorney, you may now call your first witness.
Prosecutor: The prosecution calls its first witness, Mr. Cutter Taxes, the president of the United States.
Bailiff: Do you swear to tell the truth, the whole truth, and nothing but the truth?
President Cutter Taxes: Of course. I'm the president.

Cheryl: This is an AP macroeconomics class. Students are arriving today for what we would call a summative type assessment, a summative way to pull everything together prior to the test. So this is the last step before tomorrow. Tomorrow is test day. Prior to this, we have worked extensively on developing monetary policy.

Demonstration, part 2
Prosecutor: Mr. President, tell us what you think of Monty Terry's actions. Has he been controlling the money supply?
President Taxes: Of course. Yeah, I have no problem with Monty conducting his monetary policy. The fact is, controlling the money supply, controlling the supply of money circulating in the economy is extremely important. If there is too little money, you can have a recession and unemployment and slow GDP growth, but if there is too much, you can have inflation.
Prosecutor: So, do you think he should be manipulating the economy this way, Mr. President?
President Taxes: Yeah, I agree it can be good to ease the money policy to correct an economy suffering from a recession, and it can be good to conduct a tight monetary policy to correct inflation.

Cheryl: A lot of people are scared of economics, or they feel like it is boring, that it's just the mundane sort of very difficult things to understand. And I don't think that at all. We have Mr. Spender Congressman, who will be talking about fiscal policy; Mr. Reece Session, who is of course moving very slowly; and we have Ann Flation. We have a lot of great characters, and the students really enjoy that.

Demonstration, part 3
Ms. Iona Business: We never owned our own home until Monty began to implement his easy….
Mr. Capital Inflow: Objection. Deliberate…
Ms. Dollar Isstrong: The dollar has appreciated….
Prosecutor: Your Honor, the prosecution calls its next witness, Ms. Ann Flation.
Bailiff: Do you swear to tell the truth, the whole truth and nothing but the truth?
Ms. Ann Flation: Why, yes, I would never inflate the truth.
Prosecutor: When you're around affecting the economy, making prices rise, causing too much money to chase too few goods, you really hurt the economy, don't you?
Ann: Who's on trial here? Me or Monty Terry?
Prosecutor: Your Honor, I'd like to make a motion to treat Ms. Ann Flation like a hostile witness.
Judge: So ruled.
Prosecutor: Ms. Ann Flation, what do you think Monty is guilty of and why?
Ann: Monty is guilty of controlling the money supply, and therefore manipulating the U.S. economy. I just show up minding my own business, and everyone wants me to leave. Something about me makes their paychecks not go as far, savers lose their wealth, and those that are on a fixed income can't buy their own groceries. I'm not as bad as my cousin Hyper Inflation, but everyone hates me anyways. Then Monty comes along and has to make a tough decision to institute a tight money policy.
Prosecutor: So how does Monty do that?
Ann: Monty can do this by raising the reserve requirement, raising the discount rate, or selling government securities in the open market. The Feds sell the securities to banks, and the banks pay for the securities with money. This money is then taken out of circulation.
Prosecutor: And then what happens to you?
Ann: Little by little, I go away.
Prosecutor: Your Honor, the prosecution rests.

Cheryl: Real learning takes place when the students are engaged with the activity, when they really can see the actual economics come to life.

Demonstration, part 4
Defense: Your Honor, the Defense calls Ms. Iona Business. Do you or do you not think that Monty is guilty of manipulating this economy?
Ms. Iona Business: Yes, Monty is guilty, but….
Defense: But what, madam?
Iona: I remember when the economy was in a recession in 1992, and my old neighborhood was dying. Then Monty came and, like a doctor healing a sick patient, like a carpenter building a house, like a mechanic repairing a car's engine, Monty knew the supply of money needed to be increased. Borrowing money needed to be easier and cheaper. So Monty used the tools available to him.

Cheryl: You just want to have them understand and get the concept of economics so that it will just be the beginning of making the student a lifelong learner.

Demonstration, part 5
Defense: You have heard the testimony for you and against you. What do you have to say for yourself?
Monty Terry: I have to admit that I am guilty of controlling the supply of money, but that is what I am supposed to do.
Judge: And now I'm prepared to render the sentence for this defendant. I sentence Monty Terry to continue artful management in solving macroeconomic problems.