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September 21, 2018 

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HIGH-POWERED MONEY: Also termed the monetary base, the total of currency held by the nonbank public, vault cash held by banks, and Federal Reserve deposits of the banks. This contains the monetary components over which the Federal Reserve System has relatively complete control and is often used as a guide for the Fed's money control ability and monetary policy.

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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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NET EXPORTS LINE

A graphical depiction of the relation between net exports attributed to the foreign sector and the economy's aggregate level of income or production. This relation plays a minor, but growing role in the study of Keynesian economics. A net exports line is characterized by vertical intercept, which indicates autonomous net exports, and slope, which is the negative of the marginal propensity to import and indicates induced net exports. The aggregate expenditures line used in Keynesian economics is derived by adding or stacking the net exports line onto the consumption line, after adding investment expenditures and government purchases.

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Today, you are likely to spend a great deal of time wandering around the shopping mall seeking to buy either a case for your designer sunglasses or arch supports for your shoes. Be on the lookout for defective microphones.
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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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