What money is, and how banks create money by lending

Grade 12 Social Studies Worksheet - Building Confidence

Circle the best answer.

1. Read this first

   Use this

   Cards A to C on what money does (card A is in our words; cards B and C are made up). Card A, "Three jobs of money". Who made it: written for this sheet. Summary in our words, not a quotation: A medium of exchange is what sellers accept in trade. A unit of account is what prices and debts are counted in. A store of value keeps its buying power from today until later. Card B, "Pebble Island (made up)". Who made it: written for this sheet. Summary in our words, not a quotation: Islanders trade with blocks of salt. One block buys a basket of fish or a day of work, and prices are posted in blocks. Every shop on the island accepts blocks. Each rainy season a block loses one fifth of its weight to the damp. Card C, "A trader's note (made up)". Who made it: written for this sheet. Summary in our words, not a quotation: I sell my catch for blocks today. I keep my cocoa beans for next year, because dry beans last for years and sell for the same baskets of fish.

2. 1.

   Jun reads cards A and B. Which statement about salt blocks on Pebble Island fits the cards?

   • Blocks store value well but fail as a medium of exchange, since the damp wears them away
   • Blocks work as a unit of account, since prices are posted in blocks, and that settles the matter
   • Blocks do the three jobs well, since a block buys fish and shops across the island take them
   • Blocks work as a medium of exchange and a unit of account, but poorly as a store of value
3. 2.

   Ren wants to know whether a block is a good store of value. Which missing fact matters most?

   • How many baskets of fish one block buys today, since that sets what the block is worth
   • How many shops are on the island, since more shops would make blocks a better store of value
   • How much the trader's cocoa beans weigh, since the trader keeps beans for the following year
   • How much fish one block will buy after the next rainy season, compared with today
4. 3.

   Tala reads card C beside card B. Which claim do the cards support best?

   • Dry beans suit saving better than blocks, since beans last for years and keep their price
   • The trader treats beans as a medium of exchange, since the trader sells the catch for beans
   • Beans would work as money in each shop, since beans last and sell for the same baskets of fish
   • Blocks suit saving better than beans, since a block buys a basket of fish and beans do not

5. Use this

   Cards A to C on reading a bank's balance sheet (card A is in our words; cards B and C are made up). Card A, "Reading a balance sheet". Who made it: written for this sheet. Summary in our words, not a quotation: Assets are what a bank owns or is owed: reserves and loans. Liabilities are what it owes: deposits. Equity is assets minus liabilities. A loan made by crediting a borrower's account adds the same amount to loans and to deposits. Card B, "Marsh Lane Bank (made up)". Who made it: written for this sheet. Table, columns Item | Amount: reserves | $200; loans | $800; deposits | $900. Card C, "Two events (made up)". Who made it: written for this sheet. Summary in our words, not a quotation: Event 1: a customer deposits $100 in cash at the bank. Event 2: the bank lends $100 to a customer by crediting the customer's account.

6. 4.

   Luz reads card B. What is Marsh Lane Bank's equity, and why?

   • $800: loans are what is left after the bank sets aside its reserves for customers
   • $100: assets of $1,000, reserves plus loans, minus deposits of $900
   • $200: reserves are the bank's own money, so the reserves of $200 are its equity
   • $900: deposits are the money the bank holds, so deposits are the bank's own equity
7. 5.

   Zee applies card A to Event 1, a $100 cash deposit. What changes on Marsh Lane's balance sheet?

   • Reserves rise by $100 and deposits fall by $100, since the customer holds less cash
   • Loans rise by $100 and deposits rise by $100, since the bank lends the cash out at once
   • Deposits stay at $900 and reserves rise by $100, so equity rises by $100
   • Reserves rise by $100 and deposits rise by $100, so equity stays the same
8. 6.

   Bo applies card A to Event 2, a $100 loan made by crediting the customer's account. What changes?

   • Reserves fall by $100 and loans rise by $100, since the bank pays the loan out in cash
   • Loans rise by $100 and equity rises by $100, since a new loan is a new asset
   • Loans rise by $100 and deposits rise by $100, and no cash leaves the bank
   • Loans rise by $100 and deposits fall by $100, since the customer now owes the bank
9. 7.

   Kira writes one claim from cards A to C. Which claim do the cards support best?

   • Event 1 adds new money to the system, but Event 2 just moves it, since cash is the source
   • Both events add equally to assets and liabilities, so Marsh Lane's equity stays at $100
   • Event 2 lowers equity by $100, since the bank now owes $100 more in deposits
   • Event 2 raises equity by $100, since a loan is an asset that will earn interest later

10. Use this

    Cards A and B on deposit insurance (card A is a summary; card B is made up). Card A, "Deposit insurance". Source: Federal Deposit Insurance Corporation, read November 2026. Summary in our words, not a quotation: The FDIC insures deposits up to $250,000 per depositor, per insured bank, for each account ownership category. Deposits in the same category at the same bank are added together. A joint account is its own category: each co-owner is insured up to $250,000 for that co-owner's share. Card B, "Three families (made up)". Who made it: written for this sheet. Summary in our words, not a quotation: Family 1 has $180,000 in one single account at one insured bank. Family 2 has $300,000 in one single account at one insured bank. Family 3 has a joint account of $400,000, owned equally by two people, at one insured bank.

11. 8.

    Ari applies card A to Family 1's $180,000 single account. How much of it is insured?

    • $0 today, since insurance applies after a bank fails and not while it is open
    • $100,000, since insurance covers just part of a single account and leaves the rest out
    • All $180,000, since the balance is under the $250,000 limit
    • $250,000, since the FDIC pays the full limit on any account at an insured bank
12. 9.

    Noah applies card A to Family 3's $400,000 joint account, owned equally by two people. What is insured?

    • $250,000, since a joint account is insured as one account with one limit of $250,000
    • $250,000 is insured and $150,000 is not, since the balance is $150,000 over the limit
    • $500,000, since each co-owner gets a payout of $250,000 even when the share is smaller
    • All $400,000, since each co-owner's $200,000 share is under $250,000
13. 10.

    Milo reads cards A and B. Which claim do the cards support best?

    • Family 2 can fix its gap by splitting $300,000 into two single accounts at the same bank
    • Coverage depends on the bank and the ownership category, not just the size of a balance
    • A balance over $250,000 is uninsured, whatever the bank or category it is held in
    • Family 3 is insured for more than Family 1 simply because its balance is larger