Macroecon chapter 11 Flashcards
Functions of money (3)
- Medium of exchange
- Store of value
- Unit of account
Δbarter economy
Need a double coincidence
Formats of money (3)
- Physical (metal)
- Paper
- Numerical
Gresham Law
Legally overvalued currency will drive legally undervalued currency out of circulation
Type of reserve (R) (2)
- Cash
- Deposit at Central Bank
Institutions of the modern banking system (2)
- Central bank (Bank of Canada)
- Financial intermediaries
Basic functions of BoC (3)
- Banker to the commercial bank
- Banker to the federal government
- Regulator of the money supply
Commercial bank functions (4)
- Intermediaries in credit market
- Interbank activities
- Clearing house
- Profit seeking
Commercial bank reserves (5)
- Fractional reserve
- Reserve ratio (v)
- Target reserve ratio (v*)
- Excess reserve
- Confidence and risk
Reserve ratio formula
Reserve/Deposit
Assumption in money creation by commercial banks (2)
- Constant target reserve ratio
- No cash drain (C=0)
Cash drain formula
Cash/Deposit
ΔDeposit formula
ΔReserve/v+c
Total deposit formula
Total loan + total reserve
Money supply formula
Currency in circulation + Bank deposit
Kinds of deposits (5)
- Demand deposits (cheque account)
- Saving deposit
- Term deposit
- Money market mutual funds
- Money market deposit account
Difference between M2 and M2+
M2: CC + D + notice deposits at chartered bank
M2+: M2 + similar deposits at other financial institutions
Near money
Liquid assets easily convertible into money without risk or significant loss of value
Functions of near money (2)
- Store value
- Unit of cost
Is near money a media of exchange?
No
Example of near money
Term deposit
Money substitute
Medium of exchange but not a store value
Example of money substitute
Credit card
