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Economic implications of the creation of money, marginal propensity to consume, and the Phillip's curve.

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1. A T account lists debits on the left and credits on the right. To use a T account, first determine whether the transactions affect assets, liabilities, revenues, or expense account.s Determine if the transaction increases or decreases the account's balance. Apply the debit and credit rules based on the type of account and whether the balance of the account will increase or decrease. A debit increases an asset while a credit decreases an asset.
A debit decreases a liability while a credit increases a liability.

When a customer makes a deposit into his account at a bank, this creates a liability. A liability describes the bank's obligations, or what it owes to others. In other words, the bank is liable for the amount of the deposit. On the other side of the coin, the deposit creates an asset for the bank. The bank now owns the value of the deposit and will put the money to work, looking for a rate of return that exceeds the interest it pays on the liability. By offering savers a return (and/or other services), banks take in deposits (liabilities), which creates assets that a bank can lend out. As long as the total return on assets exceeds the payment on liabilities (and other costs of doing business) the bank is profitable.

When this bank receives a deposit, it must keep a portion on reserve with the Federal Reserve (Fed) and pay a deposit insurance premium to the FDIC. With a 10% reserve ...

Solution Summary

Economic implications of the creation of money, marginal propensity to consume, and the Phillip's curve.

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