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ELASTICITY AND SUPPLY INTERCEPT: The intersection of a straight-line supply curve with vertical price axis and/or horizontal quantity axis reveals the relative price elasticity of supply. Intersection with the horizontal quantity axis means inelastic and intersection with the vertical price axis means elastic. Intersection with the origin means unit elastic supply.

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Lesson 19: Money Creation | Unit 3: Modern Banking Page: 14 of 23

Topic: Total Creation <=PAGE BACK | PAGE NEXT=>

The amount of checkable deposits created is a multiple of the amount of excess reserves of the banking system.
  • When banks makes loans, they create deposits, and create money.
When does the process stop?
  • Banks will create $900 of deposits, which added to the original $100 deposit, gives $1,000 of deposits that did not previously exist.
Why?
  • The $100 in reserves added to the first bank are used to back, in total, $1,000 of deposits.
  • If banks keep 10% of deposits in reserve, then every $1 of new reserves can be used to back $10 of new deposits.
  • This is the result of banks practicing fractional-reserve banking.

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SCIENTIFIC METHOD

A structured way of investigating and explaining the operation of the world by testing and verifying hypothesized relations. The scientific method is a process of discovery, a method of explaining the way the world operates. Positive economics is the application of the scientific method to economic analysis.

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BEIGE MUNDORTLE
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Today, you are likely to spend a great deal of time going from convenience store to convenience store hoping to buy either a replacement battery for your pocket calculator or a how-to book on home remodeling. Be on the lookout for strangers with large satchels of used undergarments.
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A lump of pure gold the size of a matchbox can be flattened into a sheet the size of a tennis court!
"When I stand before God at the end of my life, I would hope that I would not have a single bit of talent left, and could say, I used everything you gave me."

-- Erma Bombeck, writer

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