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EXCESS RESERVES: The amount of bank reserves over and above those that the Federal Reserve System requires a bank to keep. Excess reserves are what banks use to make loans. If a bank has more excess reserves, then it can make more loans. This is a key part of the Fed's ability to control the money supply. Using open market operations, the Fed can add to, or subtract from, the excess reserves held by banks. If the Fed, for example, adds to excess reserves, then banks can make more loans. Banks make these loans by adding to their customers' checking account balances. This is of some importance, because checking account balances are an major part of the economy's money supply. In essence, controlling these excess reserves is the Fed's number one method of "printing" money without actually printing money.

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Lesson 14: Aggregate Supply | Unit 3: The Curves Page: 8 of 20

Topic: Long Run <=PAGE BACK | PAGE NEXT=>

The long-run aggregate supply (LRAS) curve captures the relationship between the price level and the aggregate supply of real production in the long run.
  • GDP deflator, the price level, is measured on the vertical axis. Real GDP, the real production, is measured on the horizontal axis.
Highlights:
  • The LRAS is a straight, vertical line.
  • The price level does not affect the aggregate supply of real production.
  • The supply is real production given that all resources are fully employed.
  • Flexible prices ensures that full employment production is maintained, in the long run.

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MARGINAL REVENUE PRODUCT CURVE

A curve that graphically illustrates the relation between marginal revenue product and the quantity of the variable input, holding all other inputs fixed. This curve indicates the incremental change in total revenue for incremental changes in the variable input. The marginal revenue product curve plays a key role in marginal productivity theory and the economic analysis of factor markets.

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Today, you are likely to spend a great deal of time going from convenience store to convenience store wanting to buy either a stretchable, flexible watch band or high-gloss photo paper that works with your printer. Be on the lookout for defective microphones.
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The first U.S. fire insurance company was established by Benjamin Franklin in 1752 in Philadelphia.
"When we do the best we can, we never know what miracle is wrought in our life or in the life of another. "

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