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January 23, 2018 

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PAYMENT FLOW: In the circular flow, the clockwise transfer of money in payment for the counter-clockwise physical flow of goods and services. The payment flow is the monetary payment for goods and services received by the household sector from the business sector through product markets and the monetary payment for resource services obtained by the business sector from the household sector through factor markets.

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Lesson 19: Money Creation | Unit 2: Fred Returns Page: 5 of 23

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Let's do a review of our story of Fred the Goldsmith.
  • Fred the Goldsmith, has developed several modern banking functions.
  • Gold, his raw material, is also the economy's medium of exchange, so he has found the SAFEKEEPING function.
  • Requests to store extra gold owned by Bill the Knight and others is the DEPOSITORY function of modern banks.
  • Requests to borrow gold by Elizabeth the Innkeeper, has led to the LENDING function of modern banks.
  • The need to keep some of the gold deposited, but not all of it, has led to the modern banking function of backing deposits with reserves, FRACTIONAL-RESERVE banking.

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ECONOMIES OF SCALE

Declining long-run average cost that occurs as a firm increases all inputs and expands its scale of production. Economies of scale result from increasing returns to scale and are graphically illustrated by a negatively-sloped long-run average cost curve. Economies of scale usually occur for relatively small levels of production and are then overwhelmed by diseconomies of scale for relatively large production levels. Together, economies of scale and diseconomies of scale create a U-shaped long-run average cost curve.

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Today, you are likely to spend a great deal of time at the confiscated property police auction seeking to buy either a pair of blue silicon oven mitts or a coffee cup commemorating the 2000 Olympics. Be on the lookout for celebrities who speak directly to you through your television.
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A half gallon milk jug holds about $50 in pennies.
"Lead the life that will make you kindly and friendly to everyone about you, and you will be surprised what a happy life you will lead."

-- Charles M. Schwab

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