T-Account Contest: Using Cooperative Learning to Understand Fractional-Reserve Banking and Monetary Policy

Diane de Freitas, Fresno City College
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This material is replicated on a number of sites as part of the SERC Pedagogic Service Project


In this activity, students will work in pairs to complete the T-accounts for two banks given a set of transactions and follow-up questions. Students will need to account for deposits, bank and nonbank loans, and open market operations on the T-accounts. Students will answer questions regarding excess reserves, growth in the money supply, and the federal funds rate. Students will gain a deeper understanding of bank assets and liabilities, how the money supply grows, why banks borrow from each other and why the federal funds rate would change in response to open market operations. The activity is administered as a competition and the first pair to turn in the assignment with 100% accuracy (or closest to 100%) wins the contest.

Learning Goals

Students will gain a deeper understanding of bank assets and liabilities, how to use T-accounts, excess reserves, the money multiplier, interbank lending, open market operations and the federal funds rate.

Context for Use

This exercise should be conducted after students have studied the monetary system, including bank T-accounts, how banks create money, the Federal Reserve and the tools of monetary policy. This exercise is a comprehensive summary of these concepts and incorporates simple bank transactions and monetary policy conducted by the Federal Reserve.

The activity is suitable for classes of any size in AP Economics or college-level Principles or Introductory Macroeconomics. The exercise is designed to be completed within a 75 minute class period, and can easily be adapted to be longer or shorter, as an instructor could easily add or remove transactions.

Description and Teaching Materials

Teaching Materials:

You will need:
1) an initial T-account for two separate banks, printed on separate pieces of paper

2) a transaction/question worksheet. The transaction/question worksheet will guide students through a series of transactions and ask follow-up questions students must answer along the way.

3) An example of these materials is provided below, including the keys.

T-Account Contest: Transactions and Questions (Microsoft Word 2007 (.docx) 19kB Nov6 13)

T-Account Contest: Great Bank T-Account (Excel 2007 (.xlsx) 13kB Nov6 13)

T-Account Contest: Best Bank T-Account (Excel 2007 (.xlsx) 13kB Nov6 13)

T-Account Contest: Transactions/Questions Key (Microsoft Word 2007 (.docx) 20kB Nov6 13)

T-Account Contest: Great Bank Key (Excel 2007 (.xlsx) 13kB Nov6 13)

T-Account Contest: Best Bank Key (Excel 2007 (.xlsx) 13kB Nov6 13)

Activity Description:

1. Divide students into pairs.

2. Give each pair an initial T-account for each bank and one transaction/question worksheet.

3. Each student in the pair is to choose one bank to manage. They will be responsible for recording the transactions for that bank on its T-account. Both students together will fill out the answers to the questions on the worksheet. Ask students to write their name on their bank's T-account, and to write both of their names on the transaction/question worksheet.

4. Set a time limit for the exercise. For the attached example of 6 transactions and 18 questions, a 45 minute time limit seems appropriate.

5. The activity is designed as a contest, so the first pair to turn in an accurate accounting and correct answers wins the competition. If no team has a 100%, then the earliest team with the highest score wins. Consider giving out small prizes or extra credit for the winner and runner-ups.

6. At the end of the exercise you can show the answers on completed forms via an overhead projector and discuss the transactions and concepts with the class.

Teaching Notes and Tips

1. Consider reviewing how to record transactions in a T-account before you start this activity. Students should understand how to add and subtract (debit and credit) from assets and liabilities; clearly understand what type of transactions are recorded in Reserves, Loans Receivable, Loans Payable and Securities on a bank's balance sheet; and remember that assets must equal liabilities for each transaction.

2. Number the completed assignments in the order they are turned in, as you may have to grade them later and disclose the winners at the next class session.


Because students are working in pairs rather than larger groups, there should be less tendency for students to free-ride on other's work. Additionally, the competition aspect of the activity should encourage students to actively participate. Instructors can assess students' learning and participation by reviewing and/or grading the completed worksheets. Instructors can also give quizzes or exams post-activity which covers these concepts and further assess students' understanding.

References and Resources