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PLASTIC MONEY: A slang phrase for credit cards, especially when such cards used to make purchases. The "plastic" portion of this term refers to the plastic construction of credit cards, as opposed to paper and metal of currency. The "money" portion is an erroneous reference to credit cards as a form of money, which they are not. Although credit cards do facilitate transactions, because they are a liability rather than an asset, they are not money and not part of the economy's money supply.
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Lesson Contents
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Unit 1: A Little Magic |
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Unit 2: Fred Returns |
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Unit 3: Modern Banking |
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Unit 4: The Multiplier |
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Unit 5: Policy | |
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Money Creation
The magic of money creation as practiced by private banks is the topic of this lesson. While it seems like magic, money creation is a fundamental aspect of fractional-reserve banking. As such, in this lesson we take a look at why and how banks create money (a task they would seem to be the exclusive privilege of government). This examination of money creation provides insight into how government is able to control the economy's money supply. - The first unit introduces the magic of money creation, as practiced by the banking system.
- The second unit presents a hypothetical example of money creation as practiced by Fred the Goldsmith, where the money is different, but the process is comparable to modern banks.
- The third unit of this lesson, then examines a detailed example of how the banking system goes about creating money when it has an injection of excess reserves.
- In the fourth unit, the money creation process is summarized in terms of a deposit multiplier, which a thought or two on how this can be expanded to a money multiplier, which interests government as it seeks to control the money supply.
- The last unit of this lesson examines the money creation process in the context of monetary policies and government control of the money supply.
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IMPLICIT COST An opportunity cost that does not involve a monetary payment or any other form of compensation. The monetary payment that is often made to compensate the person who initially foregoes the satisfaction is not made for implicit cost. There is no payment to transfer the burden of the opportunity cost from the original person to someone else. Implicit cost is also occasionally termed implicit opportunity cost.
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Much of the $15 million used by the United States to finance the Louisiana Purchase from France was borrowed from European banks.
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"A ship ought not to be held by one anchor, nor life by a single hope. " -- Epictetus, philosopher
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HDI
Human Development Index
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