Chapter 12 – Money, Banking, And Money Creation Flashcards
Medium of exchange
Items sellers generally accept and buyers generally used to pay for a good or service
Money
Any item that is generally acceptable to sellers in exchange for goods and services
Barter
The exchange of one good or service for another good or service
Unit of account
A standard unit in which prices can be stated and the value of goods and services can be compared
Store of value
An asset set aside for future use
Liquidity
The ease with which an asset can be converted quickly into cash with little or no loss of producing power
Money supply
Narrowly defined, 1M; more broadly defined, M2, M2+, and M2++
M1
Currency (coins and paper money) and demand deposits in chartered banks
Currency
Coins and paper money
Demand deposit
A deposit in a chartered Bank against which checks may be written
Checking account
A demand deposit in a financial institution
Token money
coins that have a face value greater than their intrinsic value
Paper money
Pieces of paper used as a medium of exchange; in Canada, Bank of Canada notes.
Bank of Canada notes
Paper money issued by Canada’s government own central bank, the bank of Canada
Checkable deposit
Any deposit in a financial institution against which a check maybe written and which deposit, if it is in the bank, is this part of the M1 money supply
Credit union
An association of persons who have a common tie (such as being employees of the same firm or members of the same labor union) that sells shares to (accepts deposits from) its members and makes loans to them
Total supply
The supply schedule or the supply curve of all sellers of a good or service; also called market supply
Near-monies
Financial assets (such as savings and term deposits in banks and savings institutions) that are not a medium of exchange but can readily be converted into money.
Savings deposit
A deposit that is interest-bearing and that can be normally be withdrawn by the depositor at any time
M2
A broad definition of money that includes M1 plus personal and business savings deposit that require notice before withdrawal.
M2+
A broader definition of money that includes M2 plus deposits at credit unions, caisses populaires, trust companies, other nonbank deposit taking institutions, and money market mutual funds
M2++
The broadest definition of the Canadian money supply; consists of M2+ plus canada savings bonds and mom money market mutual funds.
Legal tender
Anything that government says must be accepted in payment of a debt
Fiat money
Anything that is money because government has decreed it to be money.
Chartered bank
A multi branched, privately owned, commercial financial intermediary that has received a charter by act of Parliament
Fractional reserve banking system
A banking system with the reserve ratio that is less than 100% of the deposit liabilities of a chartered Bank
Bankers Bank
A bank that excepts the deposits of and make loans to try to bank; in Canada, the Bank of Canada.
Prime rate
The interest rate banks charge their most creditworthy borrowers.
Financial intermediary
Retarded bank or other financial institution that uses the funds deposited with it to make loans
Subprime mortgage loans
High interest rate loans by financial institutions to homebuyers with higher than average credit risk
Mortgage-backed securities
Bonds backed by mortgage payments
Securitization
The process of slicing up and bundling groups of loans, mortgages, corporate bonds, or other financial debts into distinct new securities.
Moral hazard
Taking on greater risk on the assumption that one is at least partially insured against losses.
Balance sheet
A statement of the assets, liabilities, and net worth of a firm or individual at a certain time
Vault cash
The currency a bank has in its vault and cash drawers
Till money
Vault cash
Desired reserves
The amount of vault cash each chartered Bank chooses to keep on hand for daily transactions, plus it’s deposits at the bank of Canada
Desire to reserve ratio
The specified percentage of deposit liabilities a chartered Bank chooses to keep as vault cash
Excess reserves
The amount by which a chartered banks actual cash reserves exceed its desired reserves
Actual reserves
The funds that the bank has a small cash plus any deposit it may have with the bank of Canada
Overnight lending rate
The interest rate banks charge to borrow and lend one day funds to each other
Monetary multiplier
The multiple of excess cash reserves but which the banking system can expand demand deposits and thus the money supply by making new loans
