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THREE-SECTOR AGGREGATE EXPENDITURES LINE: A graphical depiction of the relation between aggregate expenditures by the three domestic macroeconomic sectors (household, business, and government) and the level of aggregate income or production. The three-sector aggregate expenditures line combines consumption expenditures, investment expenditures, and government purchases. The slope of this aggregate expenditures line is based on the marginal propensity to consume, adjusted for marginal propensities of the other expenditures that are assumed to be induced when constructing the line. This is one of three aggregate expenditures lines based on the number of sectors included. The others are the two-sector aggregate expenditures line and the four-sector aggregate expenditures line.

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Lesson 19: Money Creation | Unit 1: A Little Magic Page: 4 of 23

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  • That money is currency and checkable deposits, that currency is issued by the federal government, and that checkable deposits, 60% of M1, is issued by commercial banks
  • That money is essential to our economy as a medium of exchange, that banks are perpetually balancing assets between profit-seeking loans and deposit-protecting reserves, and that banks are heavily regulated by the government.
  • That the mystical source of magic is fractional-reserve banking. And that banks can create money by merely adding it to our checking accounts.
  • Banks do part of the money 'printing' or creation function historically performed by governments.

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ASSUMPTIONS, CLASSICAL ECONOMICS

Classical economics, especially as directed toward macroeconomics, relies on three key assumptions--flexible prices, Say's law, and saving-investment equality. Flexible prices ensure that markets adjust to equilibrium and eliminate shortages and surpluses. Say's law states that supply creates its own demand and means that enough income is generated by production to purchase the resulting production. The saving-investment equality ensures that any income leaked from consumption into saving is replaced by an equal amount of investment. Although of questionable realism, these three assumptions imply that the economy would operate at full employment.

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APLS

BEIGE MUNDORTLE
[What's This?]

Today, you are likely to spend a great deal of time wandering around the downtown area hoping to buy either a turbo-powered vacuum cleaner or a battery-powered, rechargeable vacuum cleaner. Be on the lookout for the last item on a shelf.
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Lewis Carroll, the author of Alice in Wonderland, was the pseudonym of Charles Dodgson, an accomplished mathematician and economist.
"Good judgment comes from experience, and often experience comes from bad judgment."

-- Rita Mae Brown ‚ Writer

JEL
Journal of Economic Literature
A PEDestrian's Guide
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