Chapter 10: Money, Banks, and the Bank of Canada

Question 1

Quantity of Money

Answer 1

Typically measures currency and chequing account balances.

Question 2

Double Coincidence of Wants

Answer 2

Inefficient way of trade.
–> You want meat
–> Butcher wants bread
–> Baker wants tomatoes

Question 3

Functions of money: (4)

Answer 3

1. Medium of exchange
2. Unit of account
3. Store of value
4. Standard of deferred payment

Question 4

Fiat Money

Answer 4

Money that has no other use
–> The paper money we use today
–> Gold is not fiat money because you can melt it down to make something else

Question 5

Types of deposits: (3)

Answer 5

1. Demand Deposit (Chequing)
2. Notice Deposits ( Savings)
3. Term Deposits (Investment)

Question 6

M1+

Answer 6

The narrowest definition of money:
1. Currency circulation
2. Chequable deposit at banks

Question 7

M1++

Answer 7

Includes M1+ and Non-chequable deposits

Question 8

M2

Answer 8

1. Currency
2. Personal Deposits at banks
3. Fixed term deposits

Question 9

M2+

Answer 9

Includes M2 and :
1. Deposits at TML and CUCP’s.
2. Gov. Owned institutions
3. Mutual Funds

Question 9

M2++

Answer 9

(Broadest)
1. Canada savings bonds
2. Non-money market mutual funds

Question 10

Reserves

Answer 10

Are deposits that a bank keeps as cash in its vault or on deposit with the Bank of Canada.
–> Banks hold about 5% of the reserve on hand

Question 11

Simple Deposit Multiplier

Answer 11

The ratio of the amount of deposits created by banks to the amount of new reserves

Question 11

Overnight Rate

Answer 11

The rate at which one bank borrows from another bank for a very short period. (Usually overnight)