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EC223 > C.3 What is Money? > Flashcards

C.3 What is Money? Flashcards

1
Q

Currency

A

Paper money and coins

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2
Q

Wealth

A

The total collection of pieces of property that serve to store value

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3
Q

Income

A

A flow of earnings per unit of time

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4
Q

Money

A

It is a stock: a certain amount at a given time.

Refers to anything generally accepted in payment for goods/services or in the repayment of debts

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5
Q

Primary functions of money

A

1) Medium of exchange
2) A unit of account
3) As a store of value

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6
Q

Medium of exchange

A

Money in the form of currency or cheques

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7
Q

Transaction cost

A

Time spent trying to exchange goods or services

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8
Q

Double coincidence of wants

A

In barter economies, double coincidence of wants is trying to find someone who has a good/service they want and also wants the good/service they have to offer

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9
Q

Criteria for a commodity to function as money

A

1) Easily standardized
2) Widely accepted
3) Divisible
4) Easy to carry
5) Cannot deteriorate quickly

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10
Q

Unit of account

A

Measure value in an economy

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11
Q

How does unit of account reduce transaction costs

A

Reduces the number of prices to be considered by valuing everything in terms of a single measurement

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12
Q

Store of value

A

Save purchasing power from the time income is received to the time it is spent

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13
Q

Examples of store of value

A

Money, but also any asset like stocks, bonds, land, art, jewellery

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14
Q

Without unit of account, what is the formula for determining how many prices you’d need when we have N goods

A

[N(N-1)]/2

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15
Q

Liquidity

A

The relative speed and ease an asset can be converted into a medium of exchange

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16
Q

Why do people hold money if other stores of value return higher purchasing power over time with things like interest

A

It is the most liquid asset

17
Q

Hyperinflation

A

Inflation rate exceeds 50% per month

18
Q

What determines the effectiveness of a store of value

A

Price level (think inflation)

19
Q

Payments system

A

The method of conducting transactions in the economy

20
Q

Commodity money

A

Money made up of precious metals or another valuable commodity

21
Q

Fiat money

A

Paper currency decreed by governments as legal tender

22
Q

Advantages of cheques

A
  • Transactions without needing to carry large amounts of currency
  • Reduces transportation costs associated with payments systems which improves economic efficiency
23
Q

Disadvantages of cheques

A
  • Takes time for cheques to travel

- Funds withdrawn from a chequing account take several days before the bank allows the funds to be released

24
Q

E-money

A

Money that exists only in electronic form. E.g. first example was the debit card

25
Q

Store valued card

A

Simple form is a card purchased for a prepaid amount

26
Q

Smart card

A

Sophisticated store valued card that allows it to be loaded with digital cash from the owner’s bank account whenever needed

27
Q

E-cash

A

Used online to purchase goods/services by setting up, with their bank, transfers of e-cash to their PC

28
Q

Money aggregates

A

Different measures of the money supply

29
Q

Narrowest measure of monetary aggregate + its components

A

M1+

  1. Currency: all fiat money in circulation (i.e. not held by gov’t or banks)
  2. Value of all chequable deposits at chartered banks, trust and mortgage loans companies, and credit unions.

All extremely liquid

30
Q

M1++ components

A

Same as M1+ plus all nonceqable deposits at chartered banks, TMLs, and CUCPs

31
Q

M2 components

A
  • Currency
  • Personal deposits at chartered banks
  • Non-personal demand and notice deposits at chartered banks
  • Fixed term deposits
32
Q

M2+ components

A
  • Everything in M2; plus
  • Deposits at TMLs and CUCPs
  • Life insurance company individual annuities
  • Personal deposits at government owned saving institutions
  • Money market mutual funds
33
Q

Broadest definition of money supply and its components

A

M2++

  • Everything in M2+; plus
  • Canada Savings Bonds and other retail debt instruments
  • Non-money market mutual funds
34
Q

M3

A
  • Everything in M2; plus
  • Non-personal term deposits at chartered banks
  • Foreign currency deposits of residents at chartered banks
35
Q

What do M2 and M3 not include

A

Deposits with trust and mortgage loan companies and credit unions/caisse populaires

36
Q

Which is the true measure of money

A

We do not know. Just hope they move together

37
Q

How are monetary aggregates calculated

A

Monetary components are assigned constant and equal weight for a simple-sum indices
M = x1 + x2 + … + xn
where,
xi is one of the n monetary components of the monetary aggregate M

38
Q

What are the assumptions of the index M

A
  • All monetary components contribute equally to the money total
  • All components are dollar-for-dollar perfect substitutes

EC223 (5 decks)

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