A Goldsmith Experiment for Learning Money Creation

34 Pages Posted: 26 Oct 2012

See all articles by Sarah Pearlman

Sarah Pearlman

Vassar College

Robert Rebelein

Vassar College - Department of Economics

Date Written: September 1, 2012

Abstract

The paper presents a classroom experiment designed to improve undergraduate students’ understanding of how banks create money. This concept is important to Macroeconomics and Money and Banking courses, yet students frequently struggle with it, largely due to the non-physical nature of deposits and reserves. In contrast, gold-based banking systems tend to be more intuitive due to the physical nature of gold. By simulating interactions between a Goldsmith, a Depositor, a Merchant and a Borrower in a gold-based system students gain a deeper understanding of reserves and money creation and of the intricate link between lending and the creation of new money. Highlighting the importance of gold reserves to Goldsmiths’ ability to make new loans and create new money, helps students understand the importance of reserves to modern banking.

JEL Classification: A22, E40, E51

Suggested Citation

Pearlman, Sarah and Rebelein, Robert, A Goldsmith Experiment for Learning Money Creation (September 1, 2012). Available at SSRN: https://ssrn.com/abstract=2166294 or http://dx.doi.org/10.2139/ssrn.2166294

Sarah Pearlman

Vassar College ( email )

124 Raymond Avenue
Poughkeepsie, NY 12604
United States

Robert Rebelein (Contact Author)

Vassar College - Department of Economics ( email )

124 Raymond Avenue
Box 290
Poughkeepsie, NY 12604
United States
845-437-7395 (Phone)

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