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January 19, 2018 

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X-INEFFICIENCY: Cost that is higher than it needs to be because a firm is operating inefficiently. This is most often seen for firms that have a great deal of market control, especially monopoly. The lack of competition allows a business to pad it's expenses, hire unneeded employees (like relatives), goof off instead of working, and all sorts of other things that lessen production and increase cost. The business is not penalized for these actions, because market control allows the company to extract whatever price is needed to cover cost.

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Lesson 19: Money Creation | Unit 2: Fred Returns Page: 7 of 23

Topic: Paper Loans <=PAGE BACK | PAGE NEXT=>

Elizabeth needs a loan, but she doesn't want gold, she wants receipts, she wants money.Remember that:
  • Fred issues receipts only for deposits.
  • Can he just issue receipts?Two options:
  • One: Fred can loan gold from his safe, which Elizabeth can deposit for receipts.
  • Two: Fred can loan Elizabeth the receipts directly. Note that:
  • With both, Elizabeth ends up with receipts and Fred ends up with the same amount of gold in his safe.
  • With both, receipts are not all backed by gold: The loan increases the number of receipts in circulation.Fractional-reserve banking:
  • If every receipt is redeemed, then Fred is in trouble.
  • But Fred knows that only a fraction of the gold is redeemed at any given time.

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SLOPE, AGGREGATE EXPENDITURES LINE

The positive slope of the aggregate expenditures line is the sum of the marginal propensity to consume (MPC), marginal propensity to invest (MPI), and marginal propensity for government purchases (MPG), less the marginal propensity to import (MPM). This slope is greater than zero but less than one, reflecting induced expenditures by the four macroeconomic sectors (household, business, government, and foreign). The slope of the aggregate expenditures line determines the magnitude of the multiplier process.

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Today, you are likely to spend a great deal of time at a crowded estate auction trying to buy either a large flower pot shaped like a Greek urn or a small palm tree that will fit on your coffee table. Be on the lookout for the happiest person in the room.
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Much of the $15 million used by the United States to finance the Louisiana Purchase from France was borrowed from European banks.
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