Chapter 10

Question 1

Barter

Answer 1

The exchange of one good or service for another

- trade without money

Question 2

Double coincidence of wants

Answer 2

Unlikely occurrence that two people each have a good the other wants
- would be needed with a barter

Question 3

What is money? Is barter necessary with money?

Answer 3

The set of assets that people regularly use to buy g&s from other people.
No because people use money instead of trading

Question 4

Medium of exchange

Answer 4

An item buyers give to sellers when they want to purchase goods and services

Question 5

Unit of account

Answer 5

The yardstick people use to post prices and record debts

Question 6

Store value

Answer 6

An item people can use to transfer purchasing power from the present to the future

Question 7

Commodity money

Answer 7

Takes the form of a commodity with intrinsic value

- EX. gold coins, cigarettes in POW camps

Question 8

Fiat money

Answer 8

Money without intrinsic value, used as money because of government decree
- Canadian Dollar

Question 9

Money supply (or money stock)

Answer 9

The quantity of money available in the economy

Question 10

What are the assets considered part of the money supply?

Answer 10

Currency and demand deposits

Question 11

Currency

Answer 11

Paper bills and coins in the hands of the public (non-bank)

Question 12

Demand deposits

Answer 12

Balances in bank accounts that depositors can access on demand by writing a cheque or using a debit card

Question 13

Central bank

Answer 13

An institution designed to regulate the money supply in the economy

Question 14

Bank of Canada - Who is the board of directors appointed by? and how long are the terms ?

Answer 14

Appointed by the minister of finance
Governor and senior deputy governor = 7 year terms
Other directors = 3 year terms

Question 15

What are the four primary functions of the Bank of Canada?

Answer 15

Issue curency
Acts as a banker to the commercial banks
Acts as a banker to the Canadian govt
Control the money supply

Question 16

Money supply

Answer 16

Quantity of money available in the economy

Question 17

Monetary policy

Answer 17

Decisions by policymakers concerning the money supply

Question 18

Bank of Canada =

Answer 18

Central bank of Canada

Question 19

Although the Bank of Canada alone is

responsible for Canadian ______, the central bank (BOC) can control the _____ only through its influence on the _______

Answer 19

Monetary policy, supply of money, entire banking system

Question 20

Commercial banks

Answer 20

Can influence the quantity of demand deposits in the economy and the money supply

Question 21

Examples of Commercial Banks

Answer 21

Credit unions, caisses populaires, and trust companies

Question 22

Fractional reserve banking system

Answer 22

When banks keep a fraction of deposits as reserves and use the rest to make loans

Question 23

The reserve ratio (R)

Answer 23

• Fraction of deposits that banks hold as reserves
• total reserves as a % of total deposits
• =Reserves/ (reserves + loans)

Question 24

T-account

Answer 24

A simplified accounting statement that shows a bank’s assets & liabilities

Question 25

What do a banks assets include? Liabilities include?

Answer 25

Liabilities = deposits
Assets = loans & reserves

Question 26

How do we determine a bank’s impact on the money supply? (3 ways)

Answer 26

1. No banking system
2. 100% reserve banking system: Bank holds 100% of deposits as reserves and makes no loans
3. Fractional reserve banking system