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INCOME EFFECT: One of two reasons for the law of demand and the negative slope of the market demand curve (the other is the substitution effect). The income effect results because a change in price gives buyers more real income, or the purchasing power of the income, even though money or nominal income remains the same. This causes changes in the quantity demanded of the good.

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Lesson 19: Money Creation | Unit 3: Modern Banking Page: 13 of 23

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

  • A purchase is made with a check written on Bob's State Bank, which is deposited in Charley's Credit Union.
  • Charley's Credit Union adds $81 worth of liabilities to the store's account.
  • This liability is balanced with reserves transferred from Bob's Bank.
  • Bob's Bank losses $81 and Charley's Credit Union gains $81 of reserves.
  • Bob's Bank ends up with $9 of reserves and an $81 loan.
  • Charley's Credit Union has $81 in reserves. It keeps 10% ($8.10), giving it $71.90 of excess reserves.
  • Charley's Credit Union makes a $71.90 loan to a customer.
  • This creates $71.90 of money. The three banks have created $242.90 worth of money.

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AVERAGE REVENUE CURVE, MONOPOLISTIC COMPETITION

A curve that graphically represents the relation between average revenue received by a monopolistically competitive firm for selling its output and the quantity of output sold. Because average revenue is essentially the price of a good, the average revenue curve is also the demand curve for a monopolistically competitive firm's output.

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Today, you are likely to spend a great deal of time watching the shopping channel seeking to buy either several orange mixing bowls or clothing for your pet dog. Be on the lookout for attractive cable television service repair people.
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Lombard Street is London's equivalent of New York's Wall Street.
"Far and away the best prize that life has to offer is the chance to work hard at work worth doing."

-- Theodore Roosevelt, 26th US president

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