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Intersections: Spring 2007

The Case of the Gigantic $100,000 Bill

Lesson by Andrew T. Hill, Ph.D.

This lesson is based on "How Depository Institutions Create Money," Federal Reserve Bank of Minneapolis, 1982.

Lesson Description
In this lesson, students participate in a demonstration of the money creation process using a large $100,000 bill. Expansions of the money supply caused by successive deposits and loans are traced on the board so that students can observe the process. Required reserves are cut from the large bill during each stage of the process. Students learn to calculate the upper bound of the money creation process using the simple money multiplier.

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