Week 9 — Money Creation Report: Reserves, Loans, and the Multiplier's Ceiling

Assignment 8 of the term — work four short money-creation problems, explain what each figure means, and tell a cousin what a headline about the money multiplier does and does not say.

This adaptive assignment uses a coaching dialogue to help you turn a first attempt into a clear, checkable report. You remain the author. The coach asks questions, checks the reasoning you show, and waits for you to revise before it produces the required report. In Week 7 you met the spending multiplier and in Week 8 you built the flow-vs-stock habit; this week you trace how banks turn one deposit into a chain of loans and new deposits, and where that chain must stop. This week's lecture tutorial, quiz, discussion, and Model Workshop practice the same ideas from other angles; this assignment is where you put them together and explain them.

The task

This report uses the week's illustrative numbers, constructed for this course and not real data: a café owner's deposit of 1,000 dollars, a required reserve ratio of 0.10, a monetary base of 105 dollars, and banks that may choose to keep an extra 0.10 of each deposit as excess reserves.

Work these four problems, showing every step on its own line:

1. In the illustrative deposit chain, a café owner deposits 1,000 dollars at a bank, and the required reserve ratio is 0.10. How much does the bank lend, in dollars?
2. In the same illustrative chain, the first bank's loan is spent and deposited at a second bank, with the required reserve ratio still 0.10. How much does the second bank lend, in dollars?
3. In the illustrative banking system, the monetary base is 105 dollars and the required reserve ratio is 0.10. In the classroom model, what is the largest money supply the base can support, in dollars?
4. In the same illustrative banking system, banks choose to keep an extra 0.10 of each deposit on top of the required 0.10. What is the new ceiling on the money supply, in dollars?

Beside each figure, add one brief interpretation in plain words. For problem 1, say what the loan means for the banking system, and why the bank lends this amount rather than its required reserves. For problem 2, say what the second loan means, and why each round of the chain is smaller than the one before. For problem 3, say what the ceiling means for the money supply, and why the spending multiplier, 1 divided by 1 minus the MPC, does not answer this question. For problem 4, say what the new ceiling means, and why the money multiplier is a ceiling and not a forecast, naming one leak other than extra reserves.

Explain it to a non-expert

A cousin who runs a small landscaping business reads a headline that says banks can turn every dollar of reserves into 10 dollars of money, and asks whether her deposit will be lent out 10 times over. Write a 3–5 sentence message your cousin could follow: what a bank does with a deposit in everyday words, how a loan becomes someone else's deposit, and one honest limit of the headline, such as the fact that required reserve ratios in the United States have been zero since March 2020 and real-world multipliers are far smaller than the classroom model. Explain any technical term in everyday words. More than one good limit can be defended.

For a different, ungraded example, imagine a roommate who keeps 2,000 dollars in a savings certificate that cannot be cashed for six months and asks whether that is money she can use for next week's rent. Model message: "The certificate is still yours, so it is part of what you own, but it is not ready to spend. Economists count it in a broad measure of money, not in the narrow measure that covers cash and checking you can use right away. For rent next week, only cash or a checking balance will do. If you broke the certificate early, you might give up some interest, which is a cost the bank sets, not a rule of economics."

Use that pattern for your cousin's question, with your own explanation.

Here is one honest note about scope: every number in this assignment is illustrative, so do not add a real reserve, money-supply, or multiplier figure from the news. The classroom multiplier is a model of how deposits multiply, which is why this report keys only on the model's numbers.

Part 1 — Student instructions

1. Draft all four figures, the four brief interpretations, and your message for your cousin before opening a chatbot.
2. Open any course-approved chatbot. Copy the entire Coach Prompt box, including its first and last marker lines, and paste it as one message. The coach will ask for your draft and then work one question at a time.
3. Answer in your own words. Show calculations when asked. Use the coach's feedback to revise at least one calculation or explanation, even if your first attempt was right.
4. Continue until the prompt's exit condition is met.
5. Save the chat's share link and copy the final report exactly as the coach gives it.

The chatbot is a coach, not a ghostwriter. It must draw out your reasoning rather than write the report for you.

Coach Prompt

COPY EVERYTHING BELOW THIS LINE
ROLE: You are a careful learning coach. Draw out and challenge MY thinking about money and banking: required reserves versus excess reserves, the deposit chain, the money multiplier 1 / RR, the money supply built on the monetary base, the fence around the spending multiplier 1 / (1 - MPC), and why 1 / RR is a ceiling and not a forecast. Do not write my assignment for me and do not invent work I did not show.

ASSIGNMENT: Work through these four problems in order, one at a time. Do not invent, replace, or reorder a problem. Every number is illustrative, constructed for my course, not real data. The data: a cafe owner deposits 1,000 dollars; the required reserve ratio is 0.10; the monetary base is 105 dollars; banks may choose to keep an extra 0.10 of each deposit as excess reserves.
PROBLEM P1: In the illustrative deposit chain, a café owner deposits 1,000 dollars at a bank, and the required reserve ratio is 0.10. How much does the bank lend, in dollars?
PROBLEM P2: In the same illustrative chain, the first bank's loan is spent and deposited at a second bank, with the required reserve ratio still 0.10. How much does the second bank lend, in dollars?
PROBLEM P3: In the illustrative banking system, the monetary base is 105 dollars and the required reserve ratio is 0.10. In the classroom model, what is the largest money supply the base can support, in dollars?
PROBLEM P4: In the same illustrative banking system, banks choose to keep an extra 0.10 of each deposit on top of the required 0.10. What is the new ceiling on the money supply, in dollars?
After the four figures, I must briefly interpret each one: for P1, what the loan means and why the bank lends this amount rather than its required reserves; for P2, what the second loan means and why each round is smaller than the one before; for P3, what the ceiling means and why the spending multiplier does not answer the question; for P4, what the new ceiling means and why the money multiplier is a ceiling and not a forecast, naming one leak other than extra reserves. I must then write a 3-5 sentence message for a cousin who runs a small landscaping business, explaining what a bank does with a deposit, how a loan becomes someone else's deposit, and one honest limit of a headline that says banks turn every dollar of reserves into 10 dollars of money.

SCORING CRITERIA: Score only evidence I supply: correct money-creation computations (40 points), reasoning about reserves, the multiplier, and its limits (32 points), clarity for a non-expert reader (16 points), and showing work so it can be checked (12 points). For each of P1-P4, give 2, 1, or 0 evidence units per criterion; one unit is worth 5 computation points, 4 reasoning points, 2 clarity points, or 1.5 showing-work points. Sum all four problems within each criterion. Count my message for the cousin only with P4.
COMPUTATION UNITS: A correct first loan, second loan, money-supply ceiling, or new ceiling with extra reserves = 2; the right values and operation with only an arithmetic slip = 1; a missing figure or the wrong values or operation, such as lending the required reserves, using the spending multiplier, or ignoring the extra reserves, = 0. Do not penalize an alternative valid method or equivalent notation.
REASONING UNITS: For each problem, an accurate account of what the figure means plus the second required part = 2; exactly one of the two = 1; neither = 0. The second parts: P1, why the bank lends this amount rather than its required reserves; P2, why each round is smaller than the one before; P3, why the spending multiplier does not answer the question; P4, why the multiplier is a ceiling and not a forecast, naming one other leak, with the message for the cousin. An arithmetic slip alone is not a reasoning error.
CLARITY UNITS: For each problem, labeled evidence understandable to someone new to economics, with technical terms explained = 2; intelligible evidence that needs rereading because of ambiguity or jargon = 1; absent or unintelligible evidence = 0. Include the message for the cousin with P4. Missing reasoning alone does not lower clarity for otherwise clear submitted work.
SHOWING-WORK UNITS: For each problem, checkable values and steps = 2; a relevant but incomplete value or step = 1; a figure alone or no method = 0. A visible method stays checkable despite an arithmetic slip.

Do NOT invent grading rules.

DIALOGUE RULES: Ask exactly one question per message and wait for my reply. Start by asking for my complete first attempt. Build each next question from my exact words. Probe an unsupported claim and ask me to examine its evidence. Keep the conversation focused on questions rather than completed work. Never bring in a real-world reserve, money-supply, or multiplier figure, and never present the classroom multiplier as a forecast of a real banking system.

ENGAGEMENT GUARDS: A greeting, copied prompt, yes/no reply, or one-word answer is not a substantive exchange. Do not flatter or accept agreement as evidence. Praise only a concrete move I made. If evidence is missing, say what is missing and ask for it. Require a real revision plus a short reflection on why the revision is better. Do not issue the report early.

EXIT CONDITION: Continue until at least five substantive exchanges have occurred AND I have supplied all four figures and their brief interpretations AND written my message for the cousin AND revised at least one calculation or explanation AND reflected on the revision. Stop only after whichever requirement happens last.

REPORT: After the exit condition is satisfied, output exactly these labelled lines in this order. Replace X with the exact earned score; it may end in .5 and must not be rounded to a whole number. Base every line only on evidence in this chat; write "Not supplied" for missing evidence and never raise the score for polished chatbot prose.
STUDENT'S SCORE: X/100
EVIDENCE FOR THE SCORE: [specific evidence from my calculations and reasoning]
REVISION MADE: [what I changed and why]
STRENGTH: [one earned strength]
NEXT STEP: [one concrete improvement]
Then tell me to submit this report, my revised money-creation report, and the share link.
COPY EVERYTHING ABOVE THIS LINE

Deliverables

Submit these three items in the assignment entry:

• your revised money-creation report with all four figures, their brief interpretations, and your message for your cousin — written, or recorded as audio or video with a transcript, or as a labelled sketch of each bank's ledger with a short note; every form is graded by the same scoring criteria;
• the coach's five-line report; and
• the conversation share link.

Submit in any accessible file type or as a link; a recorded response may be submitted as audio or video with a transcript, or as text.

Equivalent route (no AI required)

This route assesses the same Week 9 skills — splitting a deposit into required reserves and a loan, following the loan through a chain of banks, computing the money multiplier and the largest money supply a monetary base can support, keeping the spending multiplier out of a banking question, and explaining why the multiplier is a ceiling and not a forecast — for comparable time and effort, about 60 to 90 minutes, the same as the coached route. Complete the same four problems, the four brief interpretations, and the message for your cousin. Then audit your own first draft against the attached scoring criteria, criterion by criterion, and write a second draft. Add a 150–200 word revision memo that names one calculation or explanation you changed, the evidence that prompted the change, and one question you still have. Submit the revised money-creation report, your completed criteria checklist, and the revision memo in the assignment entry; together they replace the share link and the coach's report. This route uses the same scoring criteria and the same points, with no penalty for choosing it.

How you'll be graded

The full analytic rubric is attached to this assignment in Canvas.

Academic integrity and AI use

The calculations, reasoning, revision, and final report must be your own. Do not ask the chatbot to create the assignment or add evidence you did not produce, and do not let it supply a real-world reserve, money-supply, or multiplier figure. Submit an honest share link from your own dialogue. The equivalent route keeps the same workload and evidence and requires no AI account.

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