Chapter 11 Flashcards
What is money?
Money is anything that serves as a medium of exchange, a store of value, and a unit of account.
How Did Money Develop Historically?
Money developed from precious metal to metal coinage, to paper money convertible to precious metals, to token coinage and paper money fractionally backed by precious metals, to fiat money, and finally to deposit money.
What are the Main Elements of the Canadian Banking System?
The Canadian banking system consists of the Bank of Canada (the central bank) and commercial banks.
What is the Role of the Bank of Canada?
The Bank of Canada is responsible for the day-to-day conduct of monetary policy and has considerable autonomy in its policy decisions, though ultimate responsibility for monetary policy resides with the government.
What Role Do Commercial Banks Play in the Banking System?
Commercial banks act as intermediaries in the credit market, allowing customers to transfer deposits via cheques or electronic transfer and creating deposit money through their commercial operations of making loans and investments.
What is Fractional-Reserve Banking?
Fractional-reserve banking is when banks hold only a small portion of their deposit liabilities in reserves, enabling them to create deposit money.
How Do Banks Create Money?
Banks can create new deposits equal to a multiple of new cash deposits, depending on the target reserve ratio (v) and the cash-deposit ratio (c).
How is the Money Supply Defined?
The money supply can be defined in various ways. M2 includes currency plus demand and notice deposits at chartered banks, while includes M2 plus deposits at non-bank financial institutions and money-market mutual funds.
What is Near Money?
Near money includes interest-earning assets that are convertible into money on a dollar-for-dollar basis but are not currently a medium of exchange.
What are Money Substitutes?
Money substitutes are things like credit cards that serve as a medium of exchange but are not considered money.
What are the Functions of Money?
Money functions as a medium of exchange, a store of value, and a unit of account.
What is Fully Backed Money?
Fully backed money is money that is fully backed by a reserve of precious metals or other assets.
What is Fractionally Backed Money?
Fractionally backed money is money that is partially backed by reserves, with banks holding a fraction of their deposit liabilities in reserve.
What is Fiat Money?
Fiat money is money that has value because a government has decreed that it is an acceptable means to pay debts.
What is the Target Reserve Ratio?
The target reserve ratio is the fraction of deposits that a bank aims to hold as reserves.
