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AD-AS ANALYSIS: An economic model relating the price level and real production that is used to analyze business cycles, gross domestic product, unemployment, inflation, stabilization policies, and related macroeconomic phenomena. The AS-AD model, inspired by the standard market model, captures the interaction between aggregate demand (the buyers) and short-run and long-run aggregate supply (the sellers).

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Lesson 19: Money Creation | Unit 3: Modern Banking Page: 12 of 23

Topic: Another Bank <=PAGE BACK | PAGE NEXT=>

  • A purchase is made with a check written on the Amos National Bank.
  • The store deposits the check in Bob's State Bank.
  • Bob's Bank adds $90 worth of liabilities to the store's account.
  • This liability is balanced with reserves transferred from Amos National Bank.
  • Amos National losses $90 of reserves and Bob's Bank gains $90 of reserves.
  • Amos National ends up with $10 of reserves and a $90 loan.
  • Bob's Bank has $90 in reserves. It must keep 10% ($9), giving Bob's Bank $81 of excess reserves.
  • Bob's Bank makes an $81 loan to a customer who wants to buy a CD player.
  • Once again, this process creates $81 worth of money.

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SLOPE, AGGREGATE EXPENDITURES LINE

The positive slope of the aggregate expenditures line is the sum of the marginal propensity to consume (MPC), marginal propensity to invest (MPI), and marginal propensity for government purchases (MPG), less the marginal propensity to import (MPM). This slope is greater than zero but less than one, reflecting induced expenditures by the four macroeconomic sectors (household, business, government, and foreign). The slope of the aggregate expenditures line determines the magnitude of the multiplier process.

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Today, you are likely to spend a great deal of time surfing the Internet trying to buy either a set of luggage without wheels or a how-to book on wine tasting. Be on the lookout for telephone calls from long-lost relatives.
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A half gallon milk jug holds about $50 in pennies.
"The greatest things ever done on Earth have been done little by little. "

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