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January 19, 2018 

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WEALTH: The net ownership of material possessions and productive resources. In other words, the difference between physical and financial assets that you own and the liabilities that you owe. Wealth includes all of the tangible consumer stuff that you possess, like cars, houses, clothes, jewelry, etc.; any financial assets, like stocks, bonds, bank accounts, that you lay claim to; and your ownership of resources, including labor, capital, and natural resources. Of course, you must deduct any debts you owe.

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Lesson 19: Money Creation | Unit 3: Modern Banking Page: 10 of 23

Topic: Fractional-Reserve Magic <=PAGE BACK | PAGE NEXT=>

Modern banks practice fractional-reserve banking, which is the key to money creation.

Note that:

  • Modern reserves take the form of vault cash and Federal Reserve deposits.
  • Both ensure the safety of deposits.
  • Banks seek profits by making loans and adding to checkable deposits.
  • Checkable deposits add to the money supply.
Money creation:
  1. Banks practice fractional-reserve banking, seek revenue through loans, and keep reserves.
  2. Banks keep 10% of outstanding deposits in reserves.
  3. Reserves over those required to are excess reserves.
  4. If a bank has excess reserves, then it can make loans, increase checkable deposits, and create money.

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TAX PROPORTIONALITY

The proportion of income paid in taxes at different levels of income. In some cases the proportion of income paid in taxes increases with income in other cases it decreases. And in still other cases, it remains the same. Tax proportionality comes in three alternatives -- proportional tax (different incomes pay the same proportion in tax), progressive tax (higher incomes pay a higher proportion in tax), and regressive (lower incomes pay a higher proportion in tax).

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YELLOW CHIPPEROON
[What's This?]

Today, you are likely to spend a great deal of time searching for a specialty store looking to buy either a genuine down-filled pillow or one of those "hang in there" kitty cat posters. Be on the lookout for poorly written technical manuals.
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This isn't me! What am I?

In the late 1800s and early 1900s, almost 2 million children were employed as factory workers.
"You are never given a dream without also being given the power to make it true."

-- Richard Bach, Author

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Latin American Economic System
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