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ACCUMULATION: The process of acquiring an item and adding that item to others previously acquired. In an economic context this most often refers to the accumulation of capital, as in the phrase "capital accumulation." However, it is also used in the context of consumer durable goods, financial assets, money, wealth, and a host of other "stock" variables. When applied to capital, the process of accumulation occurs through investment.

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Lesson Contents
Unit 1: What It Is
  • Banking
  • Intermediary
  • Unit 1 Summary
  • Unit 2: Banking Details
  • Types
  • Commercial Banks
  • S&Ls
  • Credit Unions
  • Savings Banks
  • Balance Sheet
  • Unit 2 Summary
  • Unit 3: Reserve Banking
  • Reserves
  • Legal, Required, and Excess Reserves
  • Goldsmith
  • Goldsmith Deposits
  • Goldsmith Loans
  • Goldsmith Reserves
  • Unit 3 Summary
  • Unit 4: Regulating Banks
  • Why?
  • Who?
  • How?
  • Unit 4 Summary
  • Unit 5: The Economy
  • Benefits
  • Problems
  • Unit 5 Summary
  • Course Home
    Banking

    In this lesson, we take a look at the role banking plays in the macroeconomy. Banking is most important to the study of macroeconomics because a substantial fraction of the economy's money supply is under the direct control of commercial banks (as opposed to government). Because government needs to control the money supply to promote business-cycle stability, they need to control banks control of the money supply. As such, we need to take a look at how banks operate, including how they issue the deposits that make up the money supply.

    • The first unit opens this lesson with an overview of banks and the banking system, including their role as financial intermediaries.
    • Moving into the second unit, we take a closer look at the banking system, especially the four basic types of banks (banks, savings and loans, credit unions, and mutual savings banks) and the assorted assets and liabilities of a typical bank.
    • The key banking principle -- fractional-reserve banking -- is then discussed in the third unit with a little story about Fred the Goldsmith.
    • The fourth unit of this lesson discusses the why, how, and who of bank regulation.
    • The fifth and final unit then examines the benefits and problems of fractional-reserve banking for the macroeconomy.

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    EXCHANGE RATES, AGGREGATE EXPENDITURES DETERMINANT

    One of several specific aggregate expenditures determinants assumed constant when the aggregate expenditures line is constructed, and that shifts the aggregate expenditures line when it changes. An increase in the exchanges rates causes an increase (upward shift) of the aggregate expenditures line. A decrease in the exchanges rates causes a decrease (downward shift) of the aggregate expenditures line. Other notable aggregate expenditures determinants include consumer confidence, federal deficit, inflationary expectations, and interest rates.

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