Money and money supply Flashcards
Why is money important for modern economies?
The value of all goods in product and factor markets can be expressed in terms of money.
What are the four roles of money?
Medium of exchange
Measure of value
Store of value
Method of deferred payment
Describe money’s role as a medium of exchange.
Goods, services and resources are exchanged for money
Describe money’s role as a measure of value.
Money can be used to compare the relative value of goods, services and resources
Describe money’s role as a store of value
Money can be held over time and used predictably for future exchanges of resources.
Describe money’s role as a method of deferred payment.
Money allows the development of a system of lending and borrowing.
What is the money supply?
The total amount of funds in an economy that has the four characteristics of money. Measured by the M3 by the RBA.
What are monetary aggregates?
Measures of money supply. Include: currency M1 M3 Broad money
What is currency?
All currency in circulation held by general public (households and firms)
What is M1?
All currency and deposits held by transactional bank accounts. A complete measure of the most liquid funds.
What is M3?
M1 + non-transaction deposits.(eg. funds held in a term deposit account that cannot be withdrawn until end of term)
What are NBFI’s?
Non-bank financial intermediaries.
What is broad money?
M3 + NBFI deposits - NBFI deposits in banks
What is credit?
All loans and advances provided by banks and NBFI’s to households and firms.
How does credit work?
Borrowers receive money upfront, lenders receive a credit asset that gives them the right to receive interest payments and the amount borrowed at the end of the loan period.
