This video sets up a scenario in which a fictional country, Ruritania, is experiencing some monetary problems. After outlining the difficulties faced by Ruritania, the narrator explains how the IMF can assist the country with macro measures that will help the return to monetary stability.

See also the Inside Money Study Guide, a 22-page PDF with background information, pre- and post-activities, and much more.

Audience

14-18 year olds (9-12 graders, US) studying Social Studies and Economics in school.

Standard 2 — Marginal Cost/Benefit
Effective decision-making requires comparing the additional costs of alternatives with the additional benefits. Most choices involve doing a little more or a little less of something; few choices are all-or-nothing decisions.

Standard 4 — Role of Incentives
people respond predictably to positive and negative incentives.

Standard 5 — Gain from Trade
Voluntary exchange occurs only when all participating parties expect to gain. This is true for trade among individuals or organizations within a nation, and among individuals or organizations in different nations.

Standard 10 — Role of Economic Institutions
Institutions evolve in market economies to help individuals and groups accomplish their goals. Banks, labor unions, corporations, legal systems, and not-for-profit organizations are examples of important institutions. A different kind of institution, clearly defined and well-enforced property rights, is essential to a market economy.

Standard 12 — Role of Interest Rates
Interest rates, adjusted for inflation, rise and fall to balance the amount saved with the amount borrowed, thus affecting the allocation of scarce resources between present and future uses.

Standard 15 — Growth
Investment in factories, machinery, new technology, and the health, education, and training of people can raise future standards of living.

Standard 16 — Role of Government
There is an economic role for government to play in a market economy whenever the benefits of a government policy outweigh its costs. Governments often provide for national defense, address environmental concerns, define and protect property rights and attempt to make markets more competitive. Most government policies also redistribute income.

Standard 20 — Monetary and Fiscal Policy
A government's budgetary policy and its monetary policy influence the overall levels of employment, output and prices.

Introduce the video by asking students, "What is a consultant?" (Students will probably respond that a consultant is someone with specific expertise who gives advice to others.) Explain that the video presents a story about a fictional country, Ruritania, that is experiencing monetary problems. Ruritania gets help from consultants in the IMF.

Have the students work in pairs to answer the following questions while they watch the video:

Complete these phrases that describe six problems Ruritania is experiencing.

1. the economy is growing too _____________ (answer: slowly)
2. government spending is _________________ (answer: increasing)
3. the government is employing __________________ (answer: more workers than needed)
4. tax revenues are ___________ (answer: declining)
5. the government is paying subsidies to ____________ (answer: those who don't deserve them)
6. the central bank is _________________ (answer: printing too much money)
7. What are four possible actions Ruritania can take to end its monetary crisis?
8. Borrow from _______________ (answer: abroad)
9. Raise _____________ and cut _______________ (answers: interest rates; spending)
10. Reschedule _________________________ (answer: debt over a longer period of time)
11. Simply don't __________________ (answer: pay the debts)
12. What agency does Ruritania turn to for help? (answer: the IMF)

Draw the flow chart (above) on the board, and explain that the IMF encourages more open trade because the exchange of goods and services among nations leads to higher standards of living. Divide the class into groups of four; two students are from Country A, and two are from Country B. Instruct each group to think of a good or service that Countries A and B can trade (e.g., wheat from Country A and TVs from Country B). Have each group create a skit that illustrates how trade between Countries A and B illustrates the concepts in the flow chart.

Explain that the IMF's mission is to promote the well-being of the world's monetary systems. It does this by

• conducting "check-ups" of the economic health of member nations
• Ask students to list some indicators of a country's economic health (possible answers: per capita GDP, unemployment rate, inflation rate)
• examining balance of payments surpluses and deficits
• Ask students to explain how imports and exports affect a country's balance of trade. (possible answer: when imports exceed exports, a country has a trade deficit)
• suggesting ways a country can spend less
• Ask why spending less is an easier solution for a country than acquiring more revenue. (possible answer: in the short run, acquiring more revenue through taxes or other means is difficult; however, short term spending cuts can more easily be achieved)
• promoting more open and fair trade among nations
• Ask students to review trade barriers and how they hamper free trade (possible answers: trade barriers such as tariffs, quotas, subsidies and embargoes often result in retaliatory measures resulting in a lack of trust among nations, thus reducing the free flow of goods and services)

In the video, several solutions are offered to help Ruritania get out of its financial crisis. Have students do research on the Internet about these questions:

• How can devaluing its currency help a country temporarily get out of monetary trouble?
• How does privatizing government industries promote economic growth?
• How does debt restructuring help nations that are in monetary trouble?
• How can the IMF help a struggling nation with advice on interest rates?

Inside Money Study Guide
A 22-page PDF with background information, pre- and post-activities, and much more.

Web Link:
Privatization Pros and Cons. This web site provides pros and cons of privatization http://www.privatization.org/database/privatizationprosandcons.html

Online Extension Activities:
Choose 8 students who have finished their assigned work and have them, in pairs, evaluate the following lessons and present them to the class.

Is Globalization a Dirty Word? This lesson presents some ideas on globalization and requires students to check web links to find out more about it. http://www.econedlink.org/lessons/index.cfm?lesson=EM274

Exchange Rates and Exchange: How Money Affects Trade. This lesson deals with exchange rates and why it is important to keep rates stable. http://www.econedlink.org/lessons/index.cfm?lesson=EM342

Fed Orders Interest Rate Cut. This lesson discusses interest rates and how the Fed adjust rates to stabilize the economy. Students should relate the Fed's actions with tactics the IMF advises countries to help them stabilize their economies. http://www.econedlink.org/lessons/index.cfm?lesson=EM29

Inside Money video

EconEd Online