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January 19, 2019 

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TAX INCIDENCE: The ultimate payment of a tax. Many taxes are initially paid by one person, but passed along through production and consumption activities until it finally reaches someone else. An obvious example is the sales tax. While officially paid by the retail store (they write the check to the government), it's tacked on to the prices paid by consumers. Consumers, thus, bear the lion's share of most sales taxes. The incidence of other taxes is not quite so obvious. Some taxes are paid by producers early in production such as severance taxes on oil extraction without the knowledge of consumers, who end up paying through higher prices. As a general rule taxes are passed through the system until they reach someone (usually consumers) who can pass it no further.

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Lesson 19: Money Creation | Unit 3: Modern Banking Page: 13 of 23

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

  • A purchase is made with a check written on Bob's State Bank, which is deposited in Charley's Credit Union.
  • Charley's Credit Union adds $81 worth of liabilities to the store's account.
  • This liability is balanced with reserves transferred from Bob's Bank.
  • Bob's Bank losses $81 and Charley's Credit Union gains $81 of reserves.
  • Bob's Bank ends up with $9 of reserves and an $81 loan.
  • Charley's Credit Union has $81 in reserves. It keeps 10% ($8.10), giving it $71.90 of excess reserves.
  • Charley's Credit Union makes a $71.90 loan to a customer.
  • This creates $71.90 of money. The three banks have created $242.90 worth of money.

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UTILITY MEASUREMENT

A quantification of the satisfaction of wants and needs achieved through the consumption of goods and services. In principle, utility measurement can take one of two forms: (1) cardinal, which is based on numerical values (1, 2, 3, etc.) and (2) ordinal which is based on rankings (first, second, third, etc.). While the hypothetical instructional analysis of utility relies on cardinal utility, ordinal utility is a more realistic way to measure satisfaction.

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Today, you are likely to spend a great deal of time searching for a specialty store wanting to buy either a remote controlled sports car with an air spoiler or semi-gloss photo paper that works with your neighbor's printer. Be on the lookout for spoiled cheese hiding under your bed hatching conspiracies against humanity.
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