DSE Economics: Money and Banking

DSE Economics: Money and Banking — Tutor Lesson Plan

2026-10-31

Tutor lesson-prep guides · Secondary economics

Students picture a bank locking deposits in a safe, so credit creation never adds up. This lesson walks one balance sheet through the lend-and-redeposit loop until the multiplier appears.

Objectives — By the end students can: name the four functions of money with an example each; sort assets into M1, M2 and M3; and use the reserve ratio to find total deposits and the deposits created.

01 Prerequisites (3-minute check)

If any of these fails, fix it before the lesson starts.

Skill	Quick check	Pass mark
Reciprocals	What is 1 divided by 0.2	5.0
Percentages	What is 20 percent of 10 000	2,000
Functions	Which function does an Octopus card payment show	medium of exchange

02 Lesson flow (60 min)

Time	Stage	Tutor does	Student does
0-8 min	Four functions	Medium of exchange, unit of account, store of value, standard of deferred payment	One example each
8-22 min	Money supply	How the M1 to M3 layers are built	Sort four assets
22-36 min	Credit creation	Reserve ratio against the multiplier	A 20 percent ratio gives 5.0
36-48 min	Using the multiplier	The chain from one 10,000 deposit	Total deposits 50,000
48-56 min	Limits	Cash leakage, excess reserves, willingness to borrow	Name three limits
56-60 min	Exit check	Three questions collected and marked	Work alone

03 Teaching script (read it out)

Scene 1: One scenario covers all four functions

The same lunch purchase shows everything: a 50 dollar price tag is the unit of account, the notes handed over are the medium of exchange, notes kept for next week store value, and paying after eating is the standard of deferred payment.
Reusing one example keeps the four apart.

Student states which function a credit card payment demonstrates (standard of deferred payment).

Scene 2: Money supply is layered, not one number

M1 is cash plus demand deposits: 30 plus 170 gives 200 billion dollars. M2 adds savings and time deposits, M3 adds deposits with other financial institutions.
The test is how easily each asset becomes cash, not how large it is.

Note: an answer needs the definition of the layer before the number, or it scores nothing.

Scene 3: Credit creation is lending then redepositing

With a 20 percent reserve ratio a 10,000 deposit keeps 2,000 and lends 8,000, which returns as another deposit.
Total deposits are 10,000 divided by 0.20, which is 50,000, so 40,000 has been created. Raise the ratio to 25 percent and the multiplier falls to 4.0, giving 32,000.

Student calculates total deposits for an 8,000 deposit at a 25 percent ratio (32,000).

04 Question types and worked steps

Type	Example	Steps	Answer
Function	A shop prices goods in dollars	Unit of account	Not the medium of exchange
Money supply	Cash 30, demand deposits 170	M1 is cash plus demand deposits	200 billion
Total deposits	10,000 at a 20 percent ratio	Deposit divided by the ratio	50,000
Created deposits	Same case	Total minus the first deposit	40,000

Sanity check (teach this): The multiplier is one divided by the reserve ratio, and since the ratio is below one the multiplier is above one. A multiplier of 0.2 means the formula was inverted.

05 Independent practice (3 questions)

Question	Answer	What to watch
Multiplier at a 20 percent ratio	5.0	One divided by the ratio
Total deposits from 10,000 at 20 percent	50,000	Total, not the amount created
Total deposits from 8,000 at 25 percent	32,000	Ratio changed in the formula

06 Common mistakes and what to say

Mistake	Student writes	Say this
Multiplier inverted	a multiplier of 0.2	The multiplier is one divided by the reserve ratio.
Total deposits reported as created	an answer of 50,000 for creation	Subtract the first deposit to get what was created.
Time deposits placed in M1	M1 includes time deposits	Time deposits belong to M2, not M1.
Cash leakage ignored	the multiplier always happens in full	Notes held outside banks shrink the real multiplier.

07 Homework (paper, section and question numbers)

DSE Economics practice paper (money and banking) — Section B, questions 2 and 3
Secondary economics chapter index — All chapters

08 Exit check (last 5 minutes)

Question	Answer	Decision
Multiplier at a 20 percent ratio	5.0	Three right: move to international trade
Total deposits from 10,000 at 20 percent	50,000	One wrong: re-teach the formula
Total deposits from 8,000 at 25 percent	32,000	Two wrong: repeat scene 3

09 Tutor FAQ

Who sets the reserve ratio?

Commercial banks choose it, while the central bank influences it through rules and interest rates.

Is credit creation unlimited?

No: cash leakage, excess reserves and weak borrowing demand all cap it.

Is money the same as wealth?

No, money is one part of wealth; shares and property are not money.

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A TutorZone lesson-prep guide. Written by the TutorZone team; questions and lesson flow are original and are not taken from any school or publisher material.