March 21, 2018 

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RISK AVERSE: A person who values a certain income more than an equal amount of income that involves risk or uncertainty. To illustrate, let's say that you're given two options--(A) a guaranteed $1,000 or (b) a 50-50 chance of getting either $500 or $1,500. If you chose option A, then you're risk averse. Both options give you the same "expected" values. In other words, if you select option B a few hundred times, then your average amount over those few hundred times is $1,000.

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Lesson 18: Banking | Unit 3: Reserve Banking Page: 11 of 24

Topic: Reserves <=PAGE BACK | PAGE NEXT=>

Banks divide assets between loan and reserves using fractional-reserve banking:
  • The profit-pursuing, financial intermediary function of banks dictates that deposits be used for loans.
  • The safekeeping, money supply security function dictates that banks keep reserves.

A) 100% reserve banking would imply that:

  • They could not be financial intermediaries, but only storage buildings. The financial intermediary function performed by banks would have to be performed by something else.

B) 0% reserve banking would imply:

  • Problems with customers who want their wealth, but can't get it because the bank loaned it out.
  • The bank can easily be put out of business when customers spread the word that the bank is out of funds.

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The prices of other goods that influence the decision to sell a particular good, which are assumed constant when a supply curve is constructed. Other prices can be for goods that are either substitutes-in-production or complements-in-production. This is one of five supply determinants that shift the supply curve when they change. The other four are resource prices, production technology, sellers' expectations, and number of sellers.

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Today, you are likely to spend a great deal of time going from convenience store to convenience store trying to buy either a set of tires or a birthday gift for your grandfather. Be on the lookout for telephone calls from former employers.
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