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PARETO IMPROVEMENT: Based on the Pareto efficiency criterion, the notion that an action improves efficiency if it is possible for one person to benefit without anyone else being harmed. A Pareto improvement is possible if the economy has idle resources or market failures. With idle resources, more production is possible to help some without hurting others. With market failures, corrective actions can eliminate deadweight loss that can then be use for benefits economy-wide. A contrasting condition for attaining efficiency is the Kaldor-Hicks improvement.

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Lesson 19: Money Creation | Unit 4: The Multiplier Page: 17 of 23

Topic: Reserve Ratio <=PAGE BACK | PAGE NEXT=>

The key to the deposit multiplier is required reserves.

It is no coincidence that when the reserve ratio is 10%:

  • $10 of deposits require $1 of reserves and that $1 of reserves can back up $10 of deposits.
  • It's all part of the same process.
The deposit multiplier is the inverse of the reserve ratio.

The key to the deposit creation process:

  • Each bank keeps a fraction of the reserves received when checks are deposited and cleared.
  • The bank sends along the rest to another bank by making a loan.
Therefore:
  • The less banks keep, the more they send to other banks and the more is used to perpetuate the process.

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PLANNING HORIZON

Another term for the long-run average cost curve. The long-run average cost curve is termed the planning horizon or planning curve because it provides information that a firm can use to plan factory construction and expansion in the long run.

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ORANGE REBELOON
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Today, you are likely to spend a great deal of time going from convenience store to convenience store wanting to buy either a birthday greeting card for your grandmother or a coffee cup commemorating yesterday. Be on the lookout for defective microphones.
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Lombard Street is London's equivalent of New York's Wall Street.
"When you play, play hard; when you work, don't play at all. "

-- Theodore Roosevelt, 26th US president

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