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ZONING: Legal restrictions on where different activities can locate within a city. Most cities regulate the location of industrial, commercial, and residential activities. The underlying motivation behind zoning is to keep less desirable, but perhaps more profitable, activities from encroaching upon residential areas.

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Lesson 19: Money Creation | Unit 4: The Multiplier Page: 17 of 23

Topic: Reserve Ratio <=PAGE BACK | PAGE NEXT=>

The key to the deposit multiplier is required reserves.

It is no coincidence that when the reserve ratio is 10%:

  • $10 of deposits require $1 of reserves and that $1 of reserves can back up $10 of deposits.
  • It's all part of the same process.
The deposit multiplier is the inverse of the reserve ratio.

The key to the deposit creation process:

  • Each bank keeps a fraction of the reserves received when checks are deposited and cleared.
  • The bank sends along the rest to another bank by making a loan.
Therefore:
  • The less banks keep, the more they send to other banks and the more is used to perpetuate the process.

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COMPTROLLER OF THE CURRENCY

An agency of the U.S. Federal government responsible for chartering national banks. In other words, anyone wanting to establish a bank with the word "national" in the title must gain permission from the Office of the Comptroller of the Currency (OCC). The Comptroller is also responsible for regulating banks and might even assume control of a bank that is in serious trouble (that is, on the verge of failure). Although the term "currency" appears in the title, the Office of the Comptroller of the Currency is primarily a bank regulator and has almost nothing to do with the nation's "currency." The OCC was established in 1863 as a bureau of the U.S. Department of the Treasury and is located in Washington, D.C.

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Today, you are likely to spend a great deal of time at an auction trying to buy either a package of 3 by 5 index cards, the ones without lines or a blue mechanical pencil. Be on the lookout for mail order catalogs with hidden messages.
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Helping spur the U.S. industrial revolution, Thomas Edison patented nearly 1300 inventions, 300 of which came out of his Menlo Park "invention factory" during a four-year period.
"The roots of education are bitter, but the fruit is sweet."

-- Aristotle, philosopher

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Journal of Industrial Economics
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