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June 21, 2018 

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OPPORTUNITY COST, PRODUCTION POSSIBILITIES: The production possibilities analysis, which is the alternative combinations of two goods that an economy can produce with given resources and technology, can be used to illustrate opportunity cost--the highest valued alternative foregone in the pursuit of an activity.

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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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AUTONOMOUS NET EXPORTS

Net exports by the foreign sector that do not depend on income or production (especially national income or gross domestic product). That is, changes in income do not generate changes in net exports. Autonomous net exports are best thought of as net exports that the foreign sector undertakes independent of income. They are measured by the intercept term of the net exports line. The alternative to autonomous net exports is induced net exports, which do depend on income.

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GRAY SKITTERY
[What's This?]

Today, you are likely to spend a great deal of time flipping through the yellow pages looking to buy either a wall poster commemorating next Thursday or a pair of gray heavy duty boot socks. Be on the lookout for celebrities who speak directly to you through your television.
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The earliest known use of paper currency was about 1270 in China during the rule of Kubla Khan.
"Anyone who has never made a mistake has never tried anything new. "

-- Albert Einstein, physicist

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