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INDUCED INVESTMENT: Business investment expenditures that depend on income or production (especially national income or gross national product). An increase in national income triggers an increase in induced investment expenditures. Induced investment is graphically depicted as the slope of the investment line and is measured by the marginal propensity to invest. The induced relation between income and investment, as well as other induced expenditures, form the foundation of the multiplier effect triggered by changes in autonomous expenditures.

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Lesson 19: Money Creation | Unit 3: Modern Banking Page: 11 of 23

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

Suppose you find a $100 bill that you deposit in Amos National Bank.
  • Amos National adds $100 of vault cash, or reserves, to its assets, and $100 to its liabilities, your account.
  • Some of these reserves are required ($10) and some are excess ($90), which can be used for a loan.
  • Amos National Bank adds $90 to the customer's checking account, so the customer can buy new tires.
Two changes:
  • Amos National has a $90 loan balanced by a $90 checkable deposit.
  • Amos National Bank just created $90 of money.

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SCREENING

When confronted by asymmetric information, the use of small bits of information, or indicators, that suggest more comprehensive information. Screening occurs when those with limited information try to identify indicators suggesting more complete information. It is used in markets with adverse selection and moral hazard, especially in labor markets and in the provision of insurance. Common methods of screening include aptitude tests, affiliations, past behavior, and personal characteristics. A related method is signalling.

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