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September 19, 2021 

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DIVISION OF LABOR: A basic economic notion that labor resources are used more efficiently if work tasks are divided among different workers. This allows workers to specialize in production as each becomes highly skilled at specific tasks. Efficiency achieved through specialization and the division of labor was popularized by Adam Smith in his classic work, The Wealth of Nations. This division-of-labor notion is one of those concepts that is so fundamental to the economy that its importance is occasionally overlooked in the real world. It is, for example, essential to foreign trade. Without the division of labor the comfortable standard of living currently provided by our exceeding complex economic system would not be possible.

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Lesson 19: Money Creation | Unit 3: Modern Banking Page: 12 of 23

Topic: Another Bank <=PAGE BACK | PAGE NEXT=>

  • A purchase is made with a check written on the Amos National Bank.
  • The store deposits the check in Bob's State Bank.
  • Bob's Bank adds $90 worth of liabilities to the store's account.
  • This liability is balanced with reserves transferred from Amos National Bank.
  • Amos National losses $90 of reserves and Bob's Bank gains $90 of reserves.
  • Amos National ends up with $10 of reserves and a $90 loan.
  • Bob's Bank has $90 in reserves. It must keep 10% ($9), giving Bob's Bank $81 of excess reserves.
  • Bob's Bank makes an $81 loan to a customer who wants to buy a CD player.
  • Once again, this process creates $81 worth of money.

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FOUR-SECTOR, THREE-MARKET CIRCULAR FLOW

A circular flow model of the macroeconomy containing four sectors (business, household, government, and foreign) and three markets (product, factor, and financial) that illustrates the continuous movement of the payments for goods and services between producers and consumers, with particular emphasis on exports and imports. Other circular models are two-sector, two-market circular flow; two-sector, three-market circular flow; and three-sector, three-market circular flow.

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Today, you are likely to spend a great deal of time at a flea market trying to buy either a 200-foot blue garden hose or a video camera with stop action features. Be on the lookout for letters from the Internal Revenue Service.
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The average bank teller loses about $250 every year.
"When you play, play hard; when you work, don't play at all. "

-- Theodore Roosevelt, 26th US president

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