Candy Bar Inflation Activity
Objective:
By the end of the activity, students will be able to:
Explain the impact of inflation on purchasing power.
Materials:
Federal Reserve Comic Book: The Story of Inflation (available at
www.federalreserveeducation.org. Under the publications and videos section, select order
system publications. On the page that appears, type “story of inflation” in the search box.
Follow the remaining directions for ordering the free publication).
Mini candy bars
Flip chart or marker board
Markers
Modified currency (attached) – 5 one dollar bills and 2 five dollar bills in an envelope
(one set of money per student)
Concepts:
Inflation
Money Supply
Saving
Comparable Goods
Borrowing
Terms of Agreement
Supply and Demand
Procedures:
1. On the flip chart, display a graph with the X and Y axes. Label the Y axis with 5, 10, and
15 to represent the money supply. Label the X axis with 1, 2, and 3 to represent the
rounds of the auction.
2. Distribute the money and tell students to make sure they have $15 in their envelope (5
one dollar bills and 2 five dollar bills).
3. Tell students that they will be participating in an auction. Discuss what an auction is
(students are most often familiar with e-Bay) and how it works (i.e., highest bidder wins,
etc.). Next, tell students that you will be auctioning off candy bars. Explain that there is
no guarantee how many rounds of the auction there will be or what type of candy bar will
be auctioned.
4. Tell students that in the first round, they have $5 to spend and have them take out the five
one dollar bills. Describe the items to be auctioned in the first round (3 miniature candy
bars and the flavor of the candy bars).
Page 1 of 4
Candy Bar Inflation Activity
By Jackie Morgan, Economic & Financial Education Specialist
Federal Reserve Bank of Atlanta, Nashville Branch
5. Begin the bidding at $1 and ask for bids. When you receive the final bid (up to $5), trade
the candy bars for the money. Ask students how much money they had this round (money
supply is $5) and how much was spent to purchase the candy bars. Mark the amount that
was spent for the candy bar on the graph.
6. Tell students that in the second round, they have $10 to spend and have them take out one
of the five dollar bills. The student who made the purchase in the first round will have
less to spend. Describe the item to be auctioned. Begin the bidding at the purchase price
from the first round. When you receive the final bid (up to $10), trade the candy bars for
the money. Ask students how much money they had this round (money supply is $10)
and how much was spent to purchase the candy bar. Mark the amount that was spent for
the candy bars on the graph.
7. Tell students that in the third round, they have $15 to spend and have them take out the
other five dollar bill. The students who made the purchases in the first and second rounds
will have less to spend. Tell students this will be the last round of the auction. Describe
the item to be auctioned. Begin the bidding at the purchase price from the second round.
When the bid reaches $15 (it normally will because this is the final round), ask students if
anybody will give you $16 (typical response is that they don’t have that much money).
Remind students that they can do with their money what they choose (i.e., lend, borrow,
save, etc.). Students will generally begin collaborating (lending and borrowing) to
purchase the candy bars. Continue the bidding to a high level then stop the bidding
(normally around $30-$40). Trade the candy bars for the money. Ask students how much
money they had this round (money supply is $15) and how much was spent to purchase
the candy bar. Mark the amount that was spent for the candy bars on the graph.
8. Review each round of the auction. Ask students how much money they had in round one
and how much was spent for the candy bars in round one. Review for the second and
third rounds.
9. Discuss the increase in actual prices and whether having more money actually made them
better off. Show on the graph what the relative price of the goods should have been based
on the money supply (i.e., if the candy bar sold for $3 in the first round, the relative
prices in the second round would be $6 and $9 in the third round – correlates with the
available money supply). See the attached graph for a visual representation of this
information.
10. Additional discussion questions:
What determined if you were going to bid on the candy bars? (possible responses: the
type of candy being auctioned, expectation of candy being auctioned in future rounds)
If different candy was auctioned each round, discuss the concept of comparable
goods.
What supply and demand concepts were associated with auction? (possible responses:
limited supply of candy bars, demand of students for the candy)
Did anyone choose to save and not bid on the candy bars at any point? Why?
(possible responses: didn’t like the product offered, wanted to save money) For those
that did not bid at all, you may want to reward them with a candy bar as “interest” on
the funds they chose to save and invest.
Page 2 of 4
Candy Bar Inflation Activity
By Jackie Morgan, Economic & Financial Education Specialist
Federal Reserve Bank of Atlanta, Nashville Branch
Did anyone choose to borrow or lend money to purchase the candy bars? If so, what
were the terms of repayment? (possible responses: sharing candy) Discuss the terms
associated with making a loan from a bank, which is essential what happened in this
situation.
Candy Bar Inflation - Graph Example
Cost of Candy Bar
30
25
20
Actual Price
Paid
Relative Price
15
10
5
0
1
2
3
Round Number
Extensions:
1. Have students research the cost of items. Using the inflation calculator at
http://woodrow.mpls.frb.fed.us/Research/data/us/calc, have them calculate historic prices
of items.
2. Have students research the Federal Reserve and its role in price stability and inflation.
Visit www.federalreserveeducation.org or www.federalreserve.gov.
3. Have students read Federal Reserve Comic Book: The Story of Inflation. Have students
write a one-page recap about the concepts in the comic book
Page 3 of 4
Candy Bar Inflation Activity
By Jackie Morgan, Economic & Financial Education Specialist
Federal Reserve Bank of Atlanta, Nashville Branch
Currency for Candy Bar Inflation Activity
Page 4 of 4
Candy Bar Inflation Activity
By Jackie Morgan, Economic & Financial Education Specialist
Federal Reserve Bank of Atlanta, Nashville Branch