Demonstrating the Effects of Monetary Policy and Technological Change: A Classroom Experiment

John F. R. Hunter and Thomas G. Watkins

This paper presents an in-class exercise illustrating the effects on output from changes in the money supply and in input productivity. The exercise is designed for an introductory economics course enrolling students with limited exposure to macroeconomic theory. The students play a modified version of the circular flow game (Watts et al., 1998) in three rounds. The first round establishes the nominal and real GDP for a given money supply and technology. The second round demonstrates the effect of increasing the money supply, while the third round demonstrates the effect of increased productivity. Results from class play are also discussed.