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BETTER BUSINESS BUREAU: A group of businesses and organizations in a local community that seek to eliminate unethical business practices and protect consumers. The first Better Business Bureau was established in 1912 in Minnesota. Today, most local communities (read this as cities) throughout North America have Better Business Bureaus. This private response to questionable business practices should be compare with the government response, the Federal Trade Commission.

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Lesson 19: Money Creation | Unit 3: Modern Banking Page: 10 of 23

Topic: Fractional-Reserve Magic <=PAGE BACK | PAGE NEXT=>

Modern banks practice fractional-reserve banking, which is the key to money creation.

Note that:

  • Modern reserves take the form of vault cash and Federal Reserve deposits.
  • Both ensure the safety of deposits.
  • Banks seek profits by making loans and adding to checkable deposits.
  • Checkable deposits add to the money supply.
Money creation:
  1. Banks practice fractional-reserve banking, seek revenue through loans, and keep reserves.
  2. Banks keep 10% of outstanding deposits in reserves.
  3. Reserves over those required to are excess reserves.
  4. If a bank has excess reserves, then it can make loans, increase checkable deposits, and create money.

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LAW OF DEMAND

The inverse relationship between demand price and the quantity demanded, assuming ceteris paribus factors are held constant. This fundamental economic principle indicates that a decrease the price of a commodity results in an increase in the quantity of the commodity that buyers are willing and able to purchase in a given period of time, if other factors are held constant. The law of demand is one of the most important principles found in the study of economics.

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Today, you are likely to spend a great deal of time at the confiscated property police auction looking to buy either a set of luggage with wheels or a birthday gift for your aunt. Be on the lookout for malfunctioning pocket calculators.
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The earliest known use of paper currency was about 1270 in China during the rule of Kubla Khan.
"Sometimes when you innovate, you make mistakes. It is best to admit them quickly and get on with improving your other innovations. "

-- Steve Jobs, Apple Computer founder

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