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ACCOUNTING PROFIT: The difference between a business's revenue and it's accounting expenses. This is the profit that's listed on a company's balance sheet, appears periodically in the financial sector of the newspaper, and is reported to the Internal Revenue Service for tax purposes. It frequently has little relationship to a company's economic profit because of the difference between accounting expense and the opportunity cost of production. Some accounting expense is not an opportunity cost and some opportunity cost is does not show up as an accounting expenses.
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Lesson 18: Banking | Unit 3: Reserve Banking
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Page: 15 of 24
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The story continues when Elizabeth the Innkeeper needs to expand her business and ask Fred for a loan. The story: - Elizabeth's business is booming, but she is temporarily short of money, short of gold.
- She asks Fred for a loan of gold that belongs to Bill the Knight that Fred keeps on his safe.
- Elizabeth is willing to pay Fred a sizable fee for taking the risk of making this loan.
- Fred makes the loan.
- Elizabeth expands her inn, she repays the loan on schedule with interest with profit from business.
- Bill collects his gold upon returning.
- Other local merchants soon seek interest lending services from Fred.
Fred has discovered the lending function of modern banks.
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AGGREGATE DEMAND CURVE A graphical representation of the relation between aggregate expenditures on real production and the price level, holding all ceteris paribus aggregate demand determinants constant. The aggregate demand (AD) curve is one side of the graphical presentation of the aggregate market. The other side is occupied by the long-run aggregate supply curve and/or the short-run aggregate supply curve. The negative slope of the aggregate demand curve captures the inverse relation between aggregate expenditures on real production and the price level. This negative slope is attributable to the interest-rate, real-balance, and net-export effects.
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A thousand years before metal coins were developed, clay tablet "checks" were used as money by the Babylonians.
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"No great performance ever came from holding back. " -- Don Greene, motivational coach, former Green Beret
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AP
Average Product
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