What Happens When the Federal Reserve Raises Interest Rates? Lesson for Grades 9-12

Students will learn that the Federal Reserve uses interest rate policies to promote maximum employment and price stability. They will participate in an activity to demonstrate how a change in the target range for the federal funds rate transmits through the economy.

Objectives of this lesson:

Students will be able to

  • define federal funds rate, interest rate, monetary policy, and prime rate;
  • describe the Fed’s dual mandate;
  • analyze what happens in the economy when the Federal Open Market Committee changes the target range for the federal funds rate.

Compelling Question:

How does a change in the target range for the federal funds rate transmit through the economy?

This lesson plan is designed for teaching grades 9, 10, 11, and 12. It includes an extension activity for AP macroeconomics or college-level economics courses.


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Education Level: 9-12
Subjects: Economics Civics/Government
Concepts: Federal Reserve System-functions Interest Monetary Policy
Resource Types: Lesson
Languages: English
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