Money Creation and Banking Activity

Use this 40 minutes classroom activity to teach banking and money creation through one concrete decision. Students trace deposit expansion and distinguish reserves, loans, and new checkable deposits. Students create the economic outcome themselves before naming the model. Resist explaining the result during the first round. The debrief is where the experience becomes economics.

The classroom prompt

A new $1,000 of reserves enters Bank A. Banks hold required reserves and lend the rest; borrowers spend loans and sellers redeposit every dollar. Track the first three rounds and the theoretical maximum.

Put the question where every student can see it and do not supply vocabulary before students commit to an answer. Their first explanation becomes the evidence you use during the debrief.

Materials and setup

Use bank, borrower, and seller role cards plus $1,000 in paper deposits. Set the required reserve ratio at 20 percent for the first run.

Open the monetary policy sandbox if you want students to test the same idea on an interactive model after the paper task. A projected version is enough; students do not need accounts for this lesson.

Run the lesson

Answer key and teacher moves

• With rr = 0.20, the simple deposit multiplier is 1/0.20 = 5.
• A new $1,000 reserve injection supports up to $5,000 of deposits and $4,000 of new loans in the no-leakage model.
• The first three loans are $800, $640, and $512.
• Currency holdings and excess reserves make actual expansion smaller than the simple maximum.

Do not give credit for the correct direction alone. Ask students to name the changed determinant, identify the curve or quantity that changes, and connect the change to the final outcome. A complete explanation contains a cause, a model move, and a result.

What to collect

Collect three balanced T-accounts and the maximum-deposit calculation with a stated assumption.

Most likely misconception: Students say the first bank lends the same $1,000 multiple times or treat a redeposit as new physical currency.

Support and extension: Use colored assets and liabilities cards. Extend by changing rr to 10 percent and introducing a 10 percent currency drain.

A clean closing question

End with: What changed, what stayed fixed, and what evidence proves your conclusion? That sentence works as the final written check because it forces students to separate a cause from the movement it produces. Collect it, scan for the misconception above, and use the first three minutes of the next class to repair the pattern if needed.

This resource is ready to copy into a slide, handout, or LMS assignment. If you assign it for points, publish the success criteria before students begin: correct model, correct direction, and an explanation that links the two.