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RESERVE RATIO: The amount of reserves required by the Federal Reserve System as a ratio of the amount deposits backed by the reserves. Modern reserve ratios are in the range of 1-3% for checkable deposits. The reserve ratio plays a key role in the deposit multiplier. The simple deposit multiplier is simply the inverse of the reserve ratio. If the reserve ratio is 5%, then the deposit multiplier is 20. It's just that simple.
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                           CONTRIBUTIVE STANDARD: An income distribution standard in which income is divided among members of society based on the value of each person's contribution to production. This is one of three basic income distribution standards that answers the For Whom? question of allocation. The other two are the equality standard and the needs standard. The contributive standard allocates income based on the value of the goods and services a person contributes to production. This standard answers the For Whom? question of allocation primarily through the use of prices and markets. The resources used to produce goods that are more highly valued by society and that better satisfy wants and needs, have higher prices and thus generate more income to their owners.THE Standard for CapitalismThis contributive standard is the primary method of distributing income in market-oriented capitalistic economies like the United States. The markets found in market-oriented capitalism indicate the relative value of resources and production through market prices. They allocate resources and distribute income according to these relative prices. Markets inherently do a better job of distributing income according to the contributive standard. Governments, in contrast, tend to make use of the needs and equality standards.An actor, for example, who can attract millions of adoring, ticket-paying fans to view an action-packed, blockbuster movie is responsible for producing a good that is more highly valued by society than a philosophy professor who spends all semester teaching a dozen reluctant, tuition-paying students the finer details of existentialism. The movie star, as such, receives more income than the college instructor. The key is that competitive markets equate the compensation paid to resource owners with the value of the contribution the resource makes to production. In more technical terms, this is stated as an equality between the resource price and the marginal revenue product. For labor, this is an equality between the wage and the marginal revenue product of labor. Incentives for EfficiencyA primary benefit of the contributive standard is that it provides incentives for resource owners to efficiently allocate their resources to the highest valued productive uses. If, for example, Brace Brickhead can earn more income as the star of an action-packed movie than as a existentialist philosophy professor, then he would be inclined to efficiently allocate his labor resources to the production of highly-valued entertainment rather than less-valued education. Society gets more of what it wants.But Barbaric?However, a noted problem with the contributive standard is that those who contribute less (or nothing at all) to production, receive less income (or nothing at all). Taken to the extreme, the contributed standard can be downright barbaric. Newborn babies, small children, elderly, invalids, disabled, and other nonproducers would, under the contributive standard, receive no income. With no income, they purchase no goods, including food, and would be inclined to drop dead in the streets, if they could make it that far.The conundrum of the contributive standard is that no one is able to escape their unproductive childhoods and become productive adults. Unproductive children die from lack of food. While the contributive standard is a excellent starting point for the distribution of income, it is invariably seasoned with the needs and equality standards.
Recommended Citation:CONTRIBUTIVE STANDARD, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2025. [Accessed: December 12, 2025].
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Today, you are likely to spend a great deal of time looking for a downtown retail store seeking to buy either a rotisserie oven that can also toast bread or a flower arrangement in a coffee cup for your father. Be on the lookout for door-to-door salesmen.
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