Chapter 10 Flashcards
Barter
The exchange of one good or service for another
- trade without money
Double coincidence of wants
Unlikely occurrence that two people each have a good the other wants
- would be needed with a barter
What is money? Is barter necessary with money?
The set of assets that people regularly use to buy g&s from other people.
No because people use money instead of trading
Medium of exchange
An item buyers give to sellers when they want to purchase goods and services
Unit of account
The yardstick people use to post prices and record debts
Store value
An item people can use to transfer purchasing power from the present to the future
Commodity money
Takes the form of a commodity with intrinsic value
- EX. gold coins, cigarettes in POW camps
Fiat money
Money without intrinsic value, used as money because of government decree
- Canadian Dollar
Money supply (or money stock)
The quantity of money available in the economy
What are the assets considered part of the money supply?
Currency and demand deposits
Currency
Paper bills and coins in the hands of the public (non-bank)
Demand deposits
Balances in bank accounts that depositors can access on demand by writing a cheque or using a debit card
Central bank
An institution designed to regulate the money supply in the economy
Bank of Canada - Who is the board of directors appointed by? and how long are the terms ?
Appointed by the minister of finance
Governor and senior deputy governor = 7 year terms
Other directors = 3 year terms
What are the four primary functions of the Bank of Canada?
Issue curency
Acts as a banker to the commercial banks
Acts as a banker to the Canadian govt
Control the money supply
Money supply
Quantity of money available in the economy
Monetary policy
Decisions by policymakers concerning the money supply
Bank of Canada =
Central bank of Canada
Although the Bank of Canada alone is
responsible for Canadian ______, the central bank (BOC) can control the _____ only through its influence on the _______
Monetary policy, supply of money, entire banking system
Commercial banks
Can influence the quantity of demand deposits in the economy and the money supply
Examples of Commercial Banks
Credit unions, caisses populaires, and trust companies
Fractional reserve banking system
When banks keep a fraction of deposits as reserves and use the rest to make loans
The reserve ratio (R)
- Fraction of deposits that banks hold as reserves
- total reserves as a % of total deposits
- =Reserves/ (reserves + loans)
T-account
A simplified accounting statement that shows a bank’s assets & liabilities
What do a banks assets include? Liabilities include?
Liabilities = deposits Assets = loans & reserves
How do we determine a bank’s impact on the money supply? (3 ways)
- No banking system
- 100% reserve banking system: Bank holds 100% of deposits as reserves and makes no loans
- Fractional reserve banking system
