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VERTICAL MERGER: The consolidation under a single ownership of two separately-owned businesses that have an input-output relationship, in which the output of one firm is the input of another. An example of a vertical merger would be a soft drink company merging with a sugar company to form a single firm. A vertical merger should be contrasted with horizontal merger--two competing firms in the same industry that sell the same products; and conglomerate merger--two firms in totally, completely separate industries.

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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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AGGREGATE DEMAND DECREASE, LONG-RUN AGGREGATE MARKET

A shock to the long-run aggregate market caused by a decrease in aggregate demand resulting in and illustrated by a leftward shift of the aggregate demand curve. A decrease in aggregate demand in the long-run aggregate market results in an increase in the price level but no change in real production. The level of real production resulting from the aggregate demand shock is full-employment real production.

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Today, you are likely to spend a great deal of time flipping through the yellow pages wanting to buy either a green fountain pen or a handcrafted bird house. Be on the lookout for defective microphones.
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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.
"Executives who get there and stay suggest solutions when they present the problems. "

-- Malcolm Forbes, business executive

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