Macroeconomics and Global Trade · Term 3

Monetary Policy: The Bank of Canada

Examining how the Bank of Canada uses interest rates and other tools to control the money supply and inflation.

About This Topic

Inflation and unemployment are the 'twin evils' of macroeconomics. In the Ontario curriculum, students explore the causes and consequences of these two indicators. They learn how inflation is measured using the Consumer Price Index (CPI) and why a 'little bit' of inflation (usually 2%) is considered a sign of a healthy, growing economy. They also investigate the different types of unemployment: frictional, structural, and cyclical.

This unit focuses on the human cost of these economic shifts. Students analyze how 'hyperinflation' can destroy a society's savings and how 'structural unemployment' (caused by technology or globalization) can leave entire communities behind. This topic is best explored through 'shopping-trip' simulations and collaborative investigations into the 'real-world' impact of economic downturns on different regions of Canada.

Active Learning Ideas

Simulation Game: The CPI Shopping Trip

Students are given a 'basket of goods' from 1990 and must 'buy' the same items today using current prices. They calculate the percentage increase and discuss how this 'inflation' affects a family's purchasing power.

⏱ 50 min·Small Groups

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Stations Rotation: Types of Unemployment

Stations feature 'profiles' of unemployed people (e.g., a student looking for their first job, a factory worker replaced by a robot, a pilot laid off during a recession). Students must identify the 'type' of unemployment for each and suggest a 'solution.'

⏱ 45 min·Small Groups

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Think-Pair-Share: The 2% Target

Pairs discuss why the Bank of Canada wants *some* inflation rather than *zero* inflation. They brainstorm what would happen if people expected prices to *fall* (deflation) and how that would affect spending and jobs.

⏱ 30 min·Pairs

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Watch Out for These Misconceptions

Common Misconception

Inflation is always 'bad' and we should try to have zero inflation.

What to Teach Instead

Zero inflation can lead to 'deflation,' which is often worse because people stop spending, leading to a recession. A 'Deflationary Spiral' flowchart can help students see why a small, steady amount of inflation is the goal.

Common Misconception

The 'unemployment rate' includes everyone who doesn't have a job.

What to Teach Instead

It only includes people who are *actively looking* for work. It misses 'discouraged workers' and the 'underemployed.' A 'Labor Force' sorting activity can help students understand who is actually counted in the stats.

Frequently Asked Questions

How do inflation and unemployment fit into the Ontario Economics curriculum?

They are the core indicators in the 'Economic Indicators' strand. They help students understand the 'business cycle' and the challenges the government faces in keeping the economy stable.

How can active learning help students understand the CPI?

By having students 'track' the prices of things they actually buy (like video games or bubble tea) over a few months, they see that inflation isn't just a number on the news, it's a real change in the value of their own money.

What is 'Structural Unemployment'?

It's when there is a 'mismatch' between the skills workers have and the skills employers need. This often happens because of new technology or when a whole industry (like coal mining) shuts down.

How does the Bank of Canada control inflation?

Their main tool is the 'interest rate.' If inflation is too high, they raise rates to slow down spending. If it's too low, they lower rates to encourage people and businesses to borrow and spend more.

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