March 21, 2018 

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INEFFICIENCY: When the economy is NOT obtaining the highest level of consumer satisfaction from the available resources. Inefficiency occurs if it is possible to reallocate resources in a way that would generate greater satisfaction.

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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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Activities that provide direct satisfaction of wants and needs without the production of tangible products or goods. Like the related term good, a service is produced using society's resources and represents a fundamental aspect of the economy. Limited resources are used to produce the services that satisfy unlimited wants and needs in an ongoing effort to address the problem of scarcity.

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