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Econ 114 > Chapter 10 > Flashcards

Chapter 10 Flashcards

1
Q

Is Money wealth?

A

No

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2
Q

Will Money make you better off?

A

No

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3
Q

Without Money trade would require _____.

A

Barter

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4
Q

Define: Barter

A

the exchange of one god or service for another

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5
Q

the unlikely occurrence that two people each ahvea good the other wants is..

A

double coincidence of wants

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6
Q

Most people have to spend time searching for others to trade with - huge waste of resources. This problem is solved with?

A

Money

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7
Q

Define Money

A

the set of assets that people regularly use to buy Goods and services from others.

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8
Q

T or F: Money is recognizable and it’s harder to barter.

A

False. easier to barter

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9
Q

What are the 3 Functions of Money?

A

Medium of exchange
Unit of account
Store of value (wealth)

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10
Q

The function of money :an item buyers give to sellers when they want to purchase Goods and services

A

Medium of exchange

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11
Q

A function of money :an item people can use to transfer purchasing power from the present to the future.

A

Store of Value

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12
Q

A function of money: the yardstick people use to post prices and record debts. (have a common value)

A

Unit of account

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13
Q

the 2 kinds of money

A

Commodity Money

Fiat money

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14
Q

take the form of a commodity with intrinsic value is…

A

commodity money

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15
Q

fiat money:

A

money without intrinsic value, used as money because of government decree.

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16
Q

The canadian Dollar is an example of what kind of money?

A

Fiat money

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17
Q

Gold coins, big macs, cigarettes, are examples of what kind of money?

A

commodity money

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18
Q

T or F : Money supply == money stalk

A

True

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19
Q

the quantity of money available in the economy is..

A

money supply/ money stock

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20
Q

What are the 2 assets that should be considered part of the money supply?

A

Currency

Demand deposits

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21
Q

Demand deposits

A

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

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22
Q

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

A

currency

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23
Q

contract to pay back a loan

A

Asset

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24
Q

liquidity

A

how quickly money flows through the economy

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25
Q

T or F:

Credit –> spend
Debit –> borrow

A

False;
Credit –> borrow
Debit –> spend

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26
Q

What are the 2 measures of the Money stock for the Canadian economY?

A

M1, M2

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27
Q

Chequable deposits + currency are what measure of money stock?

A

M1

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28
Q

Which is more liquid? M1 or M2?

A

M1

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29
Q

Central Bank: an institution designed to regulate the ____ _____ in the economy.

A

money supply

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30
Q

Bank of Canada

A

the central bank of canada

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31
Q

T or F: the bank of Canada prints money

A

False, must balance their books through interest rates.

32
Q

T or F: Managed by a board of directors, composed of the governor, the senior deputy governor, and 12 directors, including the minister of Finance.

A

True

33
Q

who appoints the bank of canada’s board of directors?

A

minister of finance

34
Q

How long is the the term for a governor and a senior deputy governor?

A

7 years. 3 for other directors

35
Q

the difference in term lengths creates separation between politics and the bank T or F?

A

True

36
Q

What are the 4 primary functions of the Bank of Canada

A

Issue currency
act as a banker to the commercial banks
act as a banker to the canadian government
control the money supply

37
Q

money supply is…

A

quantity of money available in the economy

38
Q

monetary policy

A

decisions by policymakers conerning the money supply. (from the bank of canada, for the good of the economy)

39
Q

Through what does the bank of Canada control the money supply?

A

commercial Banks

40
Q

What is the function of a Commercial Bank?

A

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

41
Q

what type of bank includes credit unions, caisses populaires, and trust companies?

A

commercial banks

42
Q

_______ _______ banking system: banks keep a fraction of deposits as reserves and use the rest to make loans

A

fractional reserve

43
Q

fractional reserve banking system is how banks lose money T or F:

A

False ; make money

44
Q

Reserves

A

a fraction of the amount of deposits made. the rest is loaned out.

45
Q

Reserve ratio, R

A

= fraction of deposits that banks hold as reserves.

= total reserves as a percentage of total deposits

46
Q

T or F: government insures M2 money ONLY

A

M1 money only; False

47
Q

T- Account

A

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

48
Q

a banks liabilities include:

A

deposits

49
Q

a banks assets include:

A

loans and reserves

50
Q

T or F: banks lend to good credit

A

True

51
Q

Suppose $100 is in circulation, and there is No banking system. what is the money supply?

A

$100

52
Q

Suppose there is $100 in circulation and there is a 100% reserve banking system. (no loans) what is the money supply?

A

$100

53
Q

T or F: A fractional reserve banking system

creates money and wealth

A

False ; A fractional reserve banking system
creates money, but not wealth.
- companies create the wealth

54
Q

Define: the amount of money the banking system generates with each dollar of reserves

A

money multiplier

55
Q

What is the Formula for the money multiplier?

A

1/R(reserve ratio)

56
Q

What are the two tools in the Bank of Canada’s monetary toolbox?

A
  1. open-market operations

2. Changing the overnight rate

57
Q

The Bank of Canada conducts open-market operations when it buys or sells government _____ to the public:

A

bonds

58
Q

When the Bank of Canada buys government bonds, money supply will ______

A

increase

59
Q

When the Bank of Canada sells government bonds, money supply will ______

A

decrease

60
Q

The Bank of Canada conducts foreign exchange market operations when it buys or sells _____ ______.

A

foreign currencies

61
Q

The money supply ______ when the Bank of Canada buys foreign currency with Canadian currency.

A

increases

62
Q

The money supply ______ when the Bank of Canada sells foreign currency.

A

decreases

63
Q

the interest rate charged by the Bank of Canada on loans to the commercial banks:

A

bank rate

64
Q

T or F: Central banks like the Bank of Canada act as bankers to the commercial banks.

A

True

65
Q

the interest rate on very short- term loans between commercial banks

A

overnight rate

66
Q

commercial banks never need to accept less than the bank rate, minus half a percent, when they make short-term loans, because they can always lend to the Bank of Canada instead. T or F?

A

True

67
Q

Commercial banks usually need to pay more than the bank rate for short-term loans, because they can’t always borrow from the Bank of Canada.

A

False;
Commercial banks never need to pay more than the bank rate for short-term loans, because they can always borrow from the Bank of Canada instead.

68
Q

T or F: A lower overnight rate discourages banks from borrowing reserves from the Bank of Canada.

A

false; A higher overnight rate discourages banks from borrowing reserves from the Bank of Canada.

69
Q

T or F: An increase in the overnight rate reduces the quantity of reserves in the banking system, which in turn reduces the money supply.

A

True

70
Q

Can the bank of Canada alter the money supply? if so how?

A

yes, by changing the bank rate and overnight rate indirectly

71
Q

T or F: The Bank of Canada’s control of the money supply is precise.

A

False; The Bank of Canada’s control of the money supply is not precise.

72
Q

what 2 things does the bank of canada not control when it comes to money:

A
  1. households choose to hold as deposits in banks

2. commercial bankers choose to lend

73
Q

Money includes _____ and various types of bank ______.

A

currencies, deposits

74
Q

In a fractional reserve banking system, banks create money when they make _____.

A

loans

75
Q

The Bank of Canada is what kind of bank?

A

Central bank

76
Q

The bank of canada controls the money supply through _____-_____ operations or by changing the ___ ____.

A

open-market, bank rate

Econ 114 (6 decks)

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