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RESERVES: The vault cash and deposits at the Federal Reserve System that banks use to complete day-to-day transactions.
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Lesson 5: Demand | Unit 2: Law of Demand
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Page: 5 of 20
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The law of demand is the basic principle underlying demand, one of our most important economic laws. A definition: The law of demand is an inverse relationship between demand price and the quantity demanded, ceteris paribus. - Inverse relationship means that people buy more of a good if the price is lower and less if the price is higher.
- In terms of scientific method, price causes quantity demanded. A change in the price causes a change in the quantity demanded.
Ceteris paribus is important to the law of demand.- Ceteris paribus means other things remain unchanged.
- Law of demand applies exclusively to the relationship between demand price and quantity demanded.
- All other things that can affect demand must remain constant to avoid distorting this relationship.
- Because demand is affected by many factors other than price, a buyer may buy larger amounts of a good even with a higher price.
- Other factors that affect demand are called demand determinants.
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REAL-BALANCE EFFECT A change in aggregate expenditures on real production made by the household, business, government, and foreign sectors that results because a change in the price level alters the purchasing power of money. This is one of three effects underlying the negative slope of the aggregate demand curve associated with a movement along the aggregate demand curve and a change in aggregate expenditures. The other two are interest-rate effect and net-export effect. The real-balance effect is somewhat analogous to the income effect underlying the negative slope of the market demand curve.
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GRAY SKITTERY
[What's This?]
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.
Your Complete Scope
This isn't me! What am I?
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A lump of pure gold the size of a matchbox can be flattened into a sheet the size of a tennis court!
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"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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HDI
Human Development Index
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