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AGGREGATE: A common modifier for an assortment of economic terms used in the study of macroeconomics that signifies a comprehensive, often national, total value. This modifier most often surfaces in the study of the AS-AD, or "aggregate market", model of the economy with such terms as aggregate demand and aggregate supply. For example, aggregate demand indicates the total demand for production in the macroeconomy and aggregate supply indicates the total amount of that output produced. Two other noted "aggregate" terms are aggregate expenditures and aggregate production function.

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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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INVOLUNTARY EXCHANGE

The process of unwillingly trading one valuable commodity (good, service, or resource) for another, usually prompted by the coercive powers of government. The key term is "unwillingly," which distinguishes involuntary exchanges from voluntary exchanges, such as those that are the foundation of market transactions.

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GRAY SKITTERY
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Today, you are likely to spend a great deal of time watching infomercials hoping to buy either an AC adapter for your CD player or storage boxes for your family photos. Be on the lookout for telephone calls from long-lost relatives.
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The 22.6% decline in stock prices on October 19, 1987 was larger than the infamous 12.8% decline on October 29, 1929.
"Inside the ring or out, ain't nothing wrong with going down. It's staying down that's wrong. "

-- Muhammad Ali

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