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A PRIORI: A presumption made before an analysis is undertaken, often based on experiences, beliefs, or deductions from seemingly self-evident propositions about how the world works. This is a Latin for assumption or axiom. A similar sounding, but opposite term is a posteriori, which is derived from observation or facts. For example, in the study of economics of crime you might assume, a priori, that people are basically "good", because that just seems to be part of human nature, and conclude, a posteriori, that people are more likely to commit crimes when the threat of capture and conviction is lower.

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Lesson 18: Banking | Unit 3: Reserve Banking Page: 11 of 24

Topic: Reserves <=PAGE BACK | PAGE NEXT=>

Banks divide assets between loan and reserves using fractional-reserve banking:
  • The profit-pursuing, financial intermediary function of banks dictates that deposits be used for loans.
  • The safekeeping, money supply security function dictates that banks keep reserves.

A) 100% reserve banking would imply that:

  • They could not be financial intermediaries, but only storage buildings. The financial intermediary function performed by banks would have to be performed by something else.

B) 0% reserve banking would imply:

  • Problems with customers who want their wealth, but can't get it because the bank loaned it out.
  • The bank can easily be put out of business when customers spread the word that the bank is out of funds.

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PERFECT COMPETITION, LOSS MINIMIZATION

A perfectly competitive firm is presumed to produce the quantity of output that minimizes economic losses, if price is greater than average variable cost but less than average total cost. This is one of three short-run production alternatives facing a firm. The other two are profit maximization (if price exceeds average total cost) and shutdown (if price is less than average variable cost).

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Today, you are likely to spend a great deal of time flipping through the yellow pages looking to buy either a flower arrangement for your aunt or a birthday greeting card for your uncle. Be on the lookout for florescent light bulbs that hum folk songs from the sixties.
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The penny is the only coin minted by the U.S. government in which the "face" on the head looks to the right. All others face left.
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