Teaching Resource ยท Macroeconomics
Guide to Macropolis
The one idea to rule them all
Demand policy moves the economy around its potential output. Only capital, labor, and technology move potential itself.
The interest rate, taxes, spending, and the money supply are demand tools. They decide how fully you use the economy you have. Buildings decide how big that economy can become.
The buildings, and what they really are
Houses are your labor force and your consumers. More houses means more workers producing and more income being spent. Factories are physical capital, the machines and structures that let those workers produce more. Farms are cheap capital that feeds the city but is exposed to bad harvests.
Universities are slow but important for research. They do not add output directly; they raise the rate at which your technology improves, year after year. A university built early compounds for the rest of the game.
Banks move savings toward investment and soften financial panics. Ports open you to international trade, exports, imports, and the exchange rate that connects them. Civic halls raise how much government spending your economy can actually absorb before the extra dollars stop doing useful work.
Bulldozing refunds only part of a building’s cost. Capital, once built, is not perfectly reversible. That friction is deliberate.
The four levers
The interest rate is your most powerful single tool, and the most misunderstood, because it works through three channels at once. It changes the cost of borrowing for investment, nudges big consumer purchases, and moves the exchange rate, which reprices your exports and imports.
The tax rate sets how much income people keep to spend, and how much revenue the government collects. Government spending injects demand directly, up to the point your civic capacity can absorb it. Money supply growth is the quiet one: grow it faster than the economy and the extra money ends up in prices, not output. The quantity theory, live.
Five ways to play
Free Play
Twenty years, no fixed goal beyond keeping growth healthy, inflation near two percent, and people employed. Start here. Lose a few times. The losing is where the learning is.
Stagflation Strikes
You inherit nine percent inflation and a money supply running hot. Bring inflation to heel without throwing everyone out of work. This is the 1970s, compressed into ten years and handed to you. Expect the disinflation to cost you something before it works.
Recession Rescue
Confidence has collapsed and the world is in a slump. Unemployment is at nine percent and you have six years to bring it down and keep it down. Cut rates, open the spending taps, and you will see results from the very first year, because doing nothing here is itself a losing choice.
The Growth Race
Fifteen years to raise potential output by a hundred and twenty percent. No amount of clever demand management will get you there. This is the scenario that proves the three sentences above: only building, especially universities, moves the ceiling.
A Tale of Two Cities
The one I am proudest of. You choose to run an open economy or a closed one, and a twin city takes the opposite stance with the identical buildings, the identical policies, and the identical shocks. The only difference between you is the border. Both cities start at the same size, so the experiment is fair; the divergence over ten years comes entirely from how each one weathers a global boom, an oil shock, a worldwide recession, and a wave of new technology. Play it twice, once from each side, before you decide what you think about trade.
What it will not do
Facts
Macropolis is a deliberately simplified machine. Every number in it was chosen to behave plausibly, not measured from a real economy. It leaves things out on purpose. There is no Laffer curve in the tax lever, so raising taxes always raises revenue. But empirical research shows that the curve peaks around 70% so it is reasonable to ignore. There is no short-run kick from printing money; the monetary side affects only prices. And the savings rate you see is an indicator of household behavior, not a pool of funds that literally finances investment, the game does not model a loanable-funds market.
When the game behaves like the world you have read about, ask why. When it does not, ask why too. The goal is to be able to explain what the machine assumes, and where those assumptions would let you down if you trusted them with a real country.
This grew out of the microeconomics series on this site, and is based on the same idea – that economics is easier to experience and understand than to memorize, and that a good model or analogies teach more than equations and graphs. The micro series starts here and works through demand, supply, costs, and competition using education as the running example throughout.
If you teach economics, there is a full instructor’s guide with the economic model, scenario-by-scenario notes, discussion questions, and assignment ideas. Find the instructor’s guide here.
And if you find an error, or your students do something I never anticipated, I would genuinely like to hear about it. That is how the next version gets better.