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FEDERAL RESERVE BANK: One of 37 Banks (12 District and 25 Branch) that comprise the Federal Reserve System. These Banks are largely responsible for supervising, regulating, and interacting with commercial banks and carrying out the policies established by the Federal Reserve Board of Governors. The large number of banks, spread across the country is what helps make the Federal Reserve System a very decentralized central bank.

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Lesson 19: Money Creation | Unit 3: Modern Banking Page: 15 of 23

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  • That modern banks practice fractional-reserve banking, which is the key to money creation.
  • That any reserves over those required to meet a given percentage are called excess reserves, which are used by banks to make loans, increase checkable deposits, and create money.
  • That when a bank receives a deposit, two things happen: the bank adds to vault cash, or reserves, and it adds to its liabilities, the customer's account.
  • That when a check is cleared reserves are transferred from one bank to another.
  • That when banks makes loans, they create deposits, and create money.
  • That the amount of checkable deposits created is a multiple of the amount of excess reserves obtained by the banking system.

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KINKED-DEMAND CURVE

A demand curve with two distinct segments which have different elasticities that join to form a corner or kink. The primary use of the kinked-demand curve is to explain price rigidity in oligopoly. The two segments are: (1) a relatively more elastic segment for price increases and (2) a relatively less elastic segment for price decreases. The relative elasticities of these two segments is based on the interdependent decision-making of oligopolistic firms.

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