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HORIZONTAL ADDITION: In graphical analysis, the technique of combining two curves by adding the value of the variable on the horizontal or X axis for a given value of the variable on the vertical or Y axis. This is commonly done when deriving a market demand curve from a set of individual demand curves. The quantity demanded by every individual is added at a given price to identify the total market demand at that price.

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Lesson 18: Banking | Unit 5: The Economy Page: 22 of 24

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

Banks have two beneficial roles in the economy.

First: As financial intermediaries, banks match up savers and borrowers.

  • They are an effective means of diverting household income into investment expenditures for capital goods.
  • They are a vital link between the real and financial sides of the economy.

Second: As depository institutions, banks supervise a share of the nation's M1 money supply.

  • They have a big responsibility because money is critical to a complex, market-oriented economy.

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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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BLACK DISMALAPOD
[What's This?]

Today, you are likely to spend a great deal of time driving to a factory outlet wanting to buy either a coffee cup commemorating the first day of spring or a printer that works with your stockpile of ink cartridges. Be on the lookout for telephone calls from long-lost relatives.
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Lewis Carroll, the author of Alice in Wonderland, was the pseudonym of Charles Dodgson, an accomplished mathematician and economist.
"The mediocre teacher tells. The good teacher explains. The superior teacher demonstrates. The great teacher inspires."

-- William Ward ‚ Texas Wesleyan University Administrator

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