Level 5 of 5 in the Capital Valley game

Inflation, the central bank, and interest rates: the cycle that moves the value of every investment

A level is a run of 12 turns, about 30 minutes of play, that represents one year in an investor's life. This lesson plan covers level 5, the last one, which closes the Complete course with the final recap and the investor profile.

Where it fits in the curriculum

Curriculum fit: economic policy, monetary policy, and inflation (Grade 12 (US) / Year 13 (UK), ages 17-18). Also financing and interest rates (Grade 11 (US) / Year 12 (UK), ages 16-17), and a first look at asset allocation in banking and bachelor's programs.

Concepts covered: inflation and monetary policy, the inverse relationship between interest rates and bond prices, how a rate decision reaches the real economy, real assets and protection against inflation, signal and noise, market expectations, the long horizon, the investor profile.

Learning objectives

By the end of the session, students can:

1. Describe the cycle: inflation rises, the central bank raises its rates, the economy slows, inflation eases, and the central bank loosens again.
2. Explain why the price of an existing bond falls when rates rise, and climbs back when they fall.
3. Explain the path by which a central bank decision reaches companies and the price of their stocks.
4. Spot a news item that changes nothing, and describe their own investor profile by how consistent it is rather than by what it earned.

How the game works

Each student manages a virtual portfolio. Every turn brings one or two news items (official announcements, rumors, and so on) and an investment decision. The consequences arrive on the next turn, explained by a "Here's why" card. A virtual advisor, a character in the game, introduces each new element and comments on the results. Nothing in the game is left to chance. The world is the same for every student in a game, and only their decisions differ, which is what makes a rigorous debrief possible.

What students experience in level 5

These moments are guaranteed in every game, but this lesson plan does not say when they come or how they turn out. The teacher can build the debrief on them, and a student who reads it gains nothing.

• Arrival in London. Prices rise fast, inflation sets in, and the central bank acts: several rate decisions over the level, first one way and then the other, each announced by a news item.
• On the third turn of the level, earnings season: the accounts from the level of the storm, and everything listed reacts.
• Bonds move the opposite way to rates, while their coupons do not change. The virtual advisor explains why nobody buys an old bond at the same price when new ones pay more. The savings account's rate follows the central bank's rates, and everything listed ends up following the cost of credit.
• Revelations and reversals, and more surprises than at the previous levels: close to one storyline in three ends differently from what the news suggested. This is the level where what students have learned gets tested.
• A storyline where the price moves ahead of the facts: a rumor lifts a stock, then the facts confirm or deny it.
• Sometimes, a news item that changes nothing: no price moves. The test to apply: even if it were true, would it change profits?
• The last turn: the Private Equity subscribed at level 4 returns its capital with a gain. The final recap: the investor profile named, the best decision, and the costliest decision of the whole journey.

Minute-by-minute plan (computer lab)

1. Picking up (5 min). Each student reopens their game. A one-sentence reminder of the level 4 recap: what held up during the crisis, and what that had cost.

2. Guided opening turns, the first two turns (5 min). On the projector: the arrival in London, then the inflation news. A quick question before everyone confirms their decision: "When prices rise fast, what does a central bank do, and who will be affected?"

3. Independent play through the final recap (25 min). Students move at their own pace. Two one-sentence freeze-frames: at the first fall in bonds ("They fall while the coupon on new bonds rises. Write down your explanation.") and at a storyline that ends differently from what was expected ("What had made you believe it?").

4. Class debrief (12 min). Working from the final recap and the profiles on the students' screens, guide the discussion with the questions below. Show of hands: who sold their bonds at the first fall, who acted on a news item that had no effect, who had subscribed to Private Equity, who kept stocks after their storyline had ended.

5. Wrap-up (8 min). Four lines to write down: inflation rises, the central bank tightens, the economy slows, inflation ebbs; the value of bonds moves the opposite way to rates; the whole economy follows the cost of credit; an investor profile is judged by its consistency, not by the amount earned.

Flipped classroom

The assignment at the end of the previous session: "Play level 5 for next time, about 30 minutes. Write down what happened to your bonds at each central bank decision, and the name of your investor profile." The next session opens with a 20-minute debrief using the same questions, then the wrap-up.

Debrief questions

• Bonds lost value even though the government did not default and the coupon on new bonds went up. Explain to a classmate why the value of bonds falls when rates rise.
• A rate hike ended up hitting everything listed, not just bonds. By what path does a central bank decision reach the sales of a sneaker company?
• A news item produced no move at all. Who acted anyway? What test should you apply before acting on a news item?
• Private Equity returned the capital with a gain on the last turn. Who had subscribed? Was that return possible with an investment available at any time? What do you pay when you demand liquidity?
• Over the five levels, who kept stocks after their storyline had ended? Did they earn more than a fund, or only swing more? And who put a lot on a single storyline: how much did the surprise cost?
• The recap gave you a profile. Do you recognize yourself in it? Can two students with different results both have played well? What first question would you ask a bank advisor, and what answer would make you walk away?
• An honest sentence to leave the class with: in the game, the news predicts the future far more often than in real life. Outside the game, what everybody knows is already in the price. So what is left of the game's lessons?

Going further

• Previous session: level 4. The course is over. Students can play a new game, in a different world, and compare their two profiles.
• Research activity: find the latest interest-rate decision from your country's central bank (or the European Central Bank), and write the game news item that would match it, along with what it should do to bonds and stocks.
• Taking part in Global Money Week (March) with a tournament between classes.

Practical details

• Access: https://capitalvalley.app/education
• The student version needs no account, no email address, and no personal data. Suitable for use at school, in the computer lab or on a smartphone.
• Teacher contact: [email protected]