Lesson Plan

• Describe why governments run fiscal deficits and differentiate primary from overall deficits.
• Explain the three main methods of deficit financing and their immediate impact on the monetary base.
• Analyse short‑run and long‑run effects of each financing method on interest rates, investment and inflation.
• Apply the fiscal theory of the price level to assess the sustainability of deficit financing.

• Projector and screen
• PowerPoint slides covering key concepts
• Printed handout of the “Financing Methods vs Impact” table
• Worksheets with calculation exercises
• Calculators
• Whiteboard and markers
• Online polling tool (e.g., Mentimeter) for quick checks

Begin with the scenario: “A government faces a sudden recession and must decide how to fund extra spending.” Ask students to recall what they know about fiscal balances and the money supply. Explain that today they will learn how different financing choices affect the economy and what criteria will be used to judge success.

1. Do‑now (5') – short quiz on primary vs overall deficit to activate prior knowledge.
2. Mini‑lecture (10') – reasons governments run deficits; present the deficit identities with slides.
3. Group activity (12') – using the handout, each group analyses one financing method (public bonds, central‑bank purchase, foreign borrowing) and fills in a impact chart.
4. Demonstration (8') – teacher models central‑bank bond purchase and calculates the resulting money multiplier on the whiteboard.
5. Class discussion (8') – crowding‑out vs crowding‑in and an overview of the Fiscal Theory of the Price Level.
6. Check for understanding (5') – exit ticket: “In one sentence, state which financing method is most appropriate for a large infrastructure project and why.”
7. Homework briefing (2') – assign worksheet with numerical problems and a short essay on fiscal‑monetary coordination.

Summarise the key distinctions between the financing methods and their macro‑economic consequences. Collect the exit tickets to gauge understanding, and remind students to complete the worksheet and prepare a brief reflection on how fiscal rules can limit deficit financing.