Lesson Plan

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Lesson Plan
Grade: Year 12 Date: 25/02/2026
Subject: Economics
Lesson Topic: causes of changes in the money supply in an open economy: commercial banks as sources of credit creation and the bank credit multiplier
Learning Objective/s:
  • Describe how commercial banks create credit and expand the money supply.
  • Explain the bank credit multiplier and how reserve requirements and external constraints affect it.
  • Analyse how changes in reserves, foreign‑exchange interventions, and capital flows alter the money supply in an open economy.
  • Apply the multiplier formula to calculate the impact of policy changes on the money stock.
Materials Needed:
  • Projector and screen
  • Whiteboard and markers
  • Handout with multiplier formulas and example calculations
  • Calculator or spreadsheet software
  • PowerPoint slides illustrating the credit‑creation flow diagram
 Introduction:
Begin with a quick poll: how many students think banks simply lend out existing deposits. Link this to prior learning about reserve requirements and set the success criteria: define credit creation, derive the open‑economy multiplier, and calculate its effect on the money supply.
Lesson Structure:
  1. Do‑now (5') – short question on common misconceptions about bank lending.
  2. Mini‑lecture (10') – explain the credit‑creation process with a diagram.
  3. Guided practice (10') – work through the reserve‑ratio multiplier formula using the handout.
  4. Extension to open economy (10') – introduce foreign reserves and capital flows; derive m₍open₎ = 1/(r + θ).
  5. Group activity (15') – calculate ΔM for the illustrative example; groups present their results.
  6. Check for understanding (5') – exit‑ticket: one sentence summarising how external factors influence the multiplier.
Conclusion:
Recap that banks create money through lending and that the multiplier amplifies reserve changes, especially when foreign reserves and capital flows are considered. Students write an exit ticket stating the key factor that can shrink the multiplier in an open economy. For homework, assign a short problem set to compute ΔM under different scenarios.