Setting interest rates

Every year, the Bank of England runs its Target 2.5' competition. This involves one team per competing school. Each team starts out in regional heats and, if successful, moves on to area finals. The six area winners go to the national final.

At each level, teams of four students assume the role of the Monetary Policy Committee, and must decide on a particular rate of interest and justify it in relation to the 2.5% inflation target. Each team has to argue its case in a 15-minute presentation to a panel of judges (Bank of England staff and MPC members). They then answer questions put by the panel, who will have been briefed about how to speak to students in an encouraging way.

The activity below uses the Target 2.5' competition as its framework. You don't have to enter the competition, however, in order to use this activity. Although the competition and this activity are aimed primarily at A level students, a nearby comprehensive school took along a group of Year 11 GCSE students to compete.

They were unfazed.

This activity

* ties in closely with work on the trade cycle, an appropriate topic at the start of A2. You may wish students to prepare their presentation material as a summer holiday task.

* prepares each student to make an independent presentation, a central part of the Bank of England Target 2.5' competition.

* hits synoptic requirements particularly well. The AQA specification says 'The emphasis in the synoptic assessment will be on the candidates' ability to think as economists and to use effectively the economist's 'tool kit' of concepts, theories and techniques'.

The activity works well at the time at which the Bank of England competition occurs (September to December) but could be used at any time which suits your scheme of work. You can try out Part 1 of the activity at the end of the summer term, with each student taking a country to study over the summer holidays.

For this activity, Internet access is more or less essential. The Bank of England materials which accompany the competition are very valuable (if somewhat overwhelming in quantity).

A problem with the timing of the Bank of England Target 2.5' competition is that you have to submit the names of your team of four in early September, so you can't use the activity as a way of deciding team selection. Perhaps the organisers might consider changing their entry procedure.

Whether or not you go for the competition, this activity has two key benefits

* It encourages synoptic thought (AQA again: 'This module [6]...will require candidates to...develop further their critical approach to economic models and methods of enquiry... they will be required to assess the impact of current government policies to deal with these problems as well as considering alternative policies'),

* It develops students' self-confidence.

If you do enter the competition, it allows students to come face to face with real economists and also to chat to them over a 'free' lunch. For further information on the competition, go to www.bankofengland.co.uk/target2point5

Dick Brown is Economics teacher and Head of Sixth Form at Heathfield Community College.

Target 2.5 Student information sheet

PART 1: Individual task

Use the OECD website at www.oecd.org .

Find the home page. Go to the statistics portal. Scroll down to Frequently Asked Statistical Tables, or FAST. Select 'Graphs of Short-term Economic Indicators' as a good, simple starting point. Eook for the country summaries and choose six countries. Look at the data for the last 5 years.

* You will be allocated an OECD country. Using Powerpoint, you will give a 3-minute presentation on the current state of that country's economy.

* You will present data in numerical and graphical form to support your view on the state of that country's economy eg boom, recession, slump, recovery, or whatever you think.

* You will need to refer to that country's current levels of output and also to recent trends in output, inflation, and unemployment. You may also wish to support your judgement with other data on share prices, house prices, balance of payments, or levels of spare capacity.

PART 2; Team task

Use the Treasury and Bank of England websites at www.hm-treasury.gov.uk and www.bankofengland.co.uk .

As part of a team of four, you will prepare a case for recommending a particular rate of interest. This may involve raising or lowering the current rate of interest or leaving it unchanged.

You will need to:

* come to a view on the current state of the UK economy

* Share out fairly who is going to present on what areas. These areas could be:

* the level of aggregate demand

* trends in specific components of AD i.e. C, I, G, X, and M.

* labour market and wage trends

* trends in the housing market

* data on sectoral capacity

* money supply trends

* the state of the world economy

* the impact of recent or imminent exogenous shocks

* other factors that you think are important.

* Prepare a 12 minute presentation (about 3-minutes each).

* Prepare to answer follow-up questions.

Copyright Economics and Business Education Association Summer 2003
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