Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Econ 102 > Chapter 15 > Flashcards

Chapter 15 Flashcards

1
Q

What is money

A

The set of all assets that are regularly used to directly purchase goods and services

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is store of value

A

A certain amount of purchasing power that money retains over time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is medium of exchange

A

The ability to use money to purchase goods and services

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is a barter

A

Directly offering a good or service in exchange for some good or service you want

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is commodity- backed money

A

Any form of money that can be legally exchanged into a fixed amount of an underlying commodity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is fiat money

A

Money created by rule, without any commodity to back it

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What are demand deposits

A

Funds held in bank accounts that can be withdrawn by depositors at anytime without advance notice

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What are reserves

A

The money that a bank keeps on hand, either in cash or in deposits, at the bank of canada

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What are requires reserves

A

The minimum fraction of deposits that banks are legally required to keep on hand

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What are excess reserves

A

Any additional amount beyond the required reserves that a bank chooses to keep in reserve

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What are desired reserves

A

In the absence of requires reserves, the amount of reserves a bank wishes to hold

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is the basic accounting equation

A

Assets = liabilities + owners equity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

How do you calculate change in money supply

A

Change in reserves x money multiplier

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is fractional reserve banking

A

A system in which banks keep on reserve less than 100 percent of their deposits which allows the bank to lend out a portion of the money deposited in the bank

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is the money multiplier

A

The ratio of money created by the lending activities of the banking system to the money created by the central bank

We calculate it as 1/R

Where R is the reserve ratio

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is money supply and momentary base

A

The amount of money available in the economy

Contains: cash and bank reserves (can be used immediately) known as momentary base

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is M1+

A

Includes currency held by the public plus chequing account balances at charted banks, trust and mortgage loan companies, credit unions and caisses populaires (demand deposits)

*if we want to look at spending use M1+

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What is M2

A

Includes everything M1+ has plus personal savings accounts and non-personal notice deposits where money is locked away for a specific period of time

  • when looking at savings use M2
  • it can give a sense of the money multiplier
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is a central bank

A

The institution ultimately responsible for managing the nations money supply and coordinating the banking system to ensure a sound economy

20
Q

What are the four essential functions of a central bank (bank of canada)

A
  1. Being the sole issuer of Canada’s bank notes
  2. Conducting monetary policy via managing the money supply
  3. Acting as the fiscal agent for the federal government
  4. Acting as a lender of last resort
21
Q

What is the main difference between the department of finance and the bank of canada

A

The department of finance executes fiscal policy

The bank of canada conducts monetary policy

22
Q

What is monetary policy

A

It consists of actions by the central bank to manage the money supply, in pursuit of certain macroeconomic goals

23
Q

What is lender of last resort

A

Central banks can act as a lender of last resort which means that when nobody else is willing to lend to banks facing a bank run, the bank of canada can step in and do it

24
Q

What is the primary objective of the bank of canada

A

To enhance the wellbeing of Canadians by contributing to sustained economic growth, rising levels of employment, and improved living standards

25
Q

What tools does the bank of canada use to conduct monetary policy

A

Reserve requirements, open-market operations, and changing the target for overnight rate

26
Q

What is the reserve requirement

A

The most powerful tool used by the central bank but rarely used

It is the regulation that sets the minimum fraction of deposits banks must hold in reserve

27
Q

What are open market operations

A

Sales or purchases of government securities/bonds by the central bank, to or from commercial banks, on the open market

Directly result in an increase or decrease in the money supply

28
Q

What is expansionary monetary policy

A

Actions that increase the money supply in order to increase aggregate demand

29
Q

What is contractionary monetary policy

A

Actions that reduce the money supply in order to decrease aggregate demand

30
Q

What is the overnight rate

A

The interest rate at which banks chose to lend reserves held at the bank of canada to one another usually just overnight

Helps meet the goal of contractionary policy - slowing the economy down

31
Q

What is the liquidity preference model

A

The idea that the quantity of money people want to hold is a function of the interest rate

Money demand curves slope downward, showing a negative relationship between interest rate and money demanded

32
Q

In the liquid preference model, what happens when interest rates rise

A

We demand a lower quantity of money, moving leftward along the curve

33
Q

In the liquid preference model what happens when interest rates fall

A

when the interest rate falls we demand a high quantity of money, moving rightward along the curve

34
Q

What factors cause the demand curve to shift in the liquid preference model

A
  1. Price level: higher prices will increase demand which will shift the money demand curve to the right
  2. Increases (shift right) or decreases to GDP (shift left)
35
Q

In the liquid preference model, what is the point where supply of money equals demand for money

A

The nominal interest rate (r*)

36
Q

What will shift the money supply curve to the right and what is this called

A

Any actions that increase the money supply (expansionary monetary policy)

  • decreasing the reserve requirement
  • decreasing the target for the overnight rate
  • buying government bonds on the open market
37
Q

What will shift the money demand curve to the left and what is it called

A

Any action that decreases money supply (contractionary monetary policy)

38
Q

What does the slope of the money demand curve determine

A

How the change in the money supply will change the interest rate

39
Q

What happens when the slope of the demand curve is elastic

A

It will have a smaller effect on interest rates

40
Q

What will happen if the slope of the demand curve is

inelastic

A

The changes in money supply will have a greater effect on interest rate

41
Q

How do lower interest rates affect the rates of return on assets throughout the economy (expansionary monetary policy)

A
  • when the bank of Canada purchases bonds on the open market, it increases the demand for those bonds, drives up prices, and lowers their expected rates of return
  • this makes investors shift their portfolios towards other assets
  • this shift then increases the prices of the other assets in the economy and reduces their rate of return
42
Q

What is the balance sheet channel

A

The idea that a rise in asset prices causes firms and households to perceive an increase in their net worth which makes them increase spending

With lower interest rates people don’t save money so the aggregate demand increases and shifts to the right

43
Q

Contractionary monetary policy

A

Actions that reduce money supply in order to decrease aggregate demand

44
Q

What are the three main functions of money

A
  1. Store of value
  2. Medium of exchange
  3. Unit of account
45
Q

What is the reserve ratio

A

The ratio of the original deposit to the amount kept as reserves

Econ 102 (11 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions