Fractional Reserve Banking - Lesson Demonstration (Transcript)

LaJoyce Weatherspoon, 12th Grade Economics Teacher, Northeast High School, Clarksville, Tenn.: The pre-visit lesson is an awesome opportunity to give some students an overview of the Federal Reserve and its functions, as well as teaching the students the importance of the money multiplier, and it can be used for all learning abilities. The goals for the lesson would be to teach students the money multiplier and also the Federal Reserve functions and its impact on our money supply as well as the economy.

Step one: as the teacher, I'm going to give them an overview of the lesson. Step two would involve the students participating. They're going to do a scenario on the money multiplier as well as the functions of the Federal Reserve. Step three is going to involve me closing out the lesson, giving them just restated facts, and giving them an opportunity for their feedback and reflection. And then step four is going to be more assessments. We're going to participate in the Money Mania, as well as review and reflections, and then an assessment that they're going to receive.

It gives the student more rigor and relevance, and it puts that into the curriculum, but it also teaches the students to own their own learning and giving them—not just the teacher teaching the lesson—but giving them an opportunity to participate in the lesson.


LaJoyce: Let's get our money multiplier scenario out, and we'll turn it over to our narrator.

Narrator: Lynn goes to Investor's National Bank. She deposits $1,000 that she has earned from her summer job. She now has a checking account with a balance of $1,000, from which she can write checks. What will Investor's National Bank do with this newly deposited money? Well, if there's a 10 percent reserve requirement, the bankers will put $100 in their vault and lend out the rest to the people who need loans.

Saint James Entrepreneur walks into Investor's National wanting to borrow $900 to start his new catering business.

Saint James Entrepreneur: Hey, I'd like to borrow $900 to start my new catering business.

Banker: Here you go.

Narrator: If the bankers decide that his project is worthwhile, and he meets the criteria for the loan, they will give him $900. If James puts the $900 in the checking account, he can then write checks for that amount. There is now $1,000 in Lynn's checking account and $900 in James's to be spent. In other words, $900 of new money has been created. And if James deposits a profit of $500 from the grand opening of his business, the money supply grows some more.

The process now continues to McCalla Vacationer, when she comes into Investor's National to borrow for her trip to Hawaii.

McCalla Vacationer: I want to borrow $450 for my trip to Hawaii.

Narrator: The bank lends out $450 of James's deposit, while putting $50 in the reserve, and thus creates more money.

Finally, we have Quamaine Student. He walks in to borrow money for his college textbooks.

Quamaine Student: I'd like to borrow some money for my textbooks for school.

Narrator: Our fractional reserve banking system leads to this multiplier effect on money.


LaJoyce: They're really actively being engaged, also being enthusiastic about it, and also enjoying the lesson, having fun while learning. So I'm hoping that they'll get a lot of excitement out of the lesson.

It has been just one of the best tools that I've used, and I am going to keep this and incorporate it into more lessons. I just love the outline and the way that it's detailed and giving so many types of strategies to involve the student as well as the teacher.

I hope that they would take a better perspective of really the importance of the Federal Reserve and just to understand how much it does really impact our world. It's just an awesome tool for me as a teacher to teach them this, but I do hope that they would take that away with them as well.