money and banking Flashcards
what are the three functions of money
medium of exchange, store of value, unit of account
what is a medium of exchange
something that someone else will readily accept as payment for their goods
what is a double coincidence of wants
its when you barter and find something you want the other person has to want what you have to offer this is why money is better cuz people will always be willing to sell there goods for money
what is a store of value
something that value should stay relatively the same and wont parish / go bad
what is unit of account
exchanges compare values of things exchanged and that comparison is easy if the value of everything is the same units ie Canadian dollar
what is fiat money
its money that is not backed by a commodity like gold but instead its backed by the public faith of the issuer o the currency ie usd is backed by the us gov
what is the relationship of the bank of Canada and the government
it is instrument independent. the bank of Canada is a crown corp and is fully owned by the government but the government doesn’t control or manage the bank instead it gives the bank goals to achieve and the bank decides how to achieve the goals.
what are the functions of the bank of Canada
its the bank of the fed , its the bank for the banks , its the lender of last resort , its the regulator of money supply
what does it mean to be the bank of the fed
its like the TD for the government
what does it mean to be the bankers bank
banks deposit money into the BOC and the BOC also gives out loans to private banks
what does it mean to be the lender of last resort
if banks cant find money or lend money from anywhere else then there last resort is to go to the BOC and get a loan
what is a monetary policy maker
the BOC is able to control the amount of money in the economy ( print out money)
what is the goal of a private bank
a private bank is a business and like every other business its goal is to maximize profits
how do banks make money
by taking deposits from the public and then loaning a portion of that money to other people
what is the cost of deposits
the banks payout interest as the cost of deposits
what is a new deposit
money that wasn’t previously apart of the system which has now been deposited and is considered a new deposit
how does the BOC measure monetary supply
by creating monetary aggregates
who defines monetary aggregates
the bank of Canada
what is the Canadian dollar backed by
the dollar is backed by the government and is not backed by any commodity
when comparing prices of goods what are you using money as
your using money as a unit of account
why do people accept cash as payment
because they believe that the cash will retain its value and they believe others will accept the cash they received so they can buy goods too
