Money supply impacts

Overview

In this third lesson of the unit “Understanding Inflation Dynamics”, students build from earlier inflation ideas to understand what “money supply” means and how changes in money supply can influence inflation, interest rates, and spending in New Zealand.

Learning intentions

WALT: Explore what “money supply” means in an economic context and discuss factors that influence money supply decisions.

Success criteria

• I can define money supply using simple economic language.
• I can list key factors that influence changes in money supply.
• I can use a simple graph to illustrate how money supply changes can affect related variables (e.g., interest rates and inflation pressure).
• I can explain why central banks care about money supply when trying to influence economic outcomes.

Curriculum links

• Economics learning — analysing inflation using economic concepts and models, including identifying inflation concepts and explaining causes and impacts using economic models.
• Economic concepts — inflation, disinflation, deflation; and real versus nominal indicators.
• Models focus — this lesson prepares for AS/AD and the quantity theory of money by building the “money” side of the story.

Lesson structure (75 minutes)

1. 0–8 min · Starter: “What is money supply?” Teacher displays three quick statements (e.g., “It is all the money in NZ”; “It includes bank deposits”; “It affects interest rates”). Students sort them into “true/false/unsure” and explain one reason with a partner.

2. 8–18 min · Mini-lesson: Definition and measures Teacher explains money supply as the total stock of money available in the economy, including cash and deposits, and introduces common student-friendly ideas of measures (without needing technical detail). Students complete a short guided note: “Money supply is… / It includes… / It matters because…”

3. 18–32 min · Factors influencing money supply Teacher leads a discussion anchored to central bank actions and the banking system (e.g., how interest rate policy, reserve requirements, and liquidity tools can affect lending and deposits). Students add to a class “influences bank” chart, then each student writes a 3–4 sentence explanation: “A change in money supply can happen because…”

4. 32–52 min · Graph skill: illustrating change Teacher models two quick graph interpretations:

• Graph A: money supply on the horizontal axis shifting right/left (conceptually), linked to “more money available to spend/invest”.
• Graph B: a related variable (e.g., interest rate direction) as a consequence, using a simple arrow-based change (students do not need a full model derivation). Students produce a labelled “cause → change → possible effect” diagram in their books, using at least one arrow and one label.

5. 52–62 min · Practice: Explain and connect to inflation dynamics Teacher gives a scenario card: “A central bank increases liquidity / encourages more bank lending” (students may adapt wording to their diagram). Students answer:

• What happens to money supply (in direction terms)?
• Why might this increase inflation pressure later?
• Who might be affected first (e.g., borrowers/savers/households)? Students share one response with a partner and revise using peer feedback.

6. 62–70 min · Formative check: 3-question exit mini-quiz (no marks discussed) Teacher collects quick answers: definition, list two factors, and one sentence linking money supply to inflation pressure.

7. 70–75 min · Review and transition Teacher summarises: “Today was the money side of inflation dynamics; next we connect it to inflation models and real vs nominal impacts.” Students complete a single reflective prompt: “One new thing I can do is…”

Resources

• Scenario cards (2–3 versions)
• Graph paper or pre-printed blank axes sheets (A4)
• “Influences bank” class chart paper or slide
• Guided notes template (definition + includes + why it matters)
• Coloured pencils/markers for arrows and labels
• Dyslexia-friendly reading options: text printed in larger font, simplified definitions on one page, and audio-recorded teacher reading (device ready)

Assessment

• Ongoing formative checks during the partner sort in the starter (misconceptions identified).
• Mark-free review of student diagrams: use a quick checklist (labelled axes/labels/arrows + clear cause/effect wording).
• Exit mini-quiz: teacher uses responses to group students for the next lesson (support/targeted practice).

Differentiation

• Support (sentence starters and structure): provide a “Money supply is… / It includes… / One factor that changes it is… / This can lead to…” scaffold and a word bank (cash, deposits, lending, central bank, liquidity, interest rates, spending).
• Support for graph literacy: give pre-drawn simple arrow diagrams showing “shift” directions; students add labels and one explanation sentence.
• Extension (advanced learners): ask students to analyse the central bank’s money supply-related policy using a 4-step frame: policy action → expected money supply change → transmission to interest rates/credit → likely inflation impact, plus one risk (e.g., inflation expectations rising or uneven impacts).
• Dyslexia-friendly reading: offer simplified definition cards, larger font worksheets, and an audio option for the scenario text; allow oral responses that the teacher transcribes for the exit quiz if needed.