Unit 10: BANKS, MONEY & THE CREDIT SYSTEM Flashcards
What is money?
A medium of exchange used to produce goods or services.
Examples of money:
-Bank notes.
-Bank deposits.
-Cheques.
Money allows ________ ________ to be transferred among people.
Purchasing power.
What is liquid money?
Money that can be easily & quickly used for transactions or converted into cash without losing value.
M0 to M4 money supply in terms of liquidity:
M0: most liquid.
M4: least liquid.
M0:
Monetary Base:
-Includes currency bills, coins, and bank reserves.
-Represents physical money plus reserves.
M1:
Narrow Money:
-M0 + highly liquid deposits in commercial banks.
-Includes cash and deposits that can be quickly converted into cash.
M2:
Broad Money - Part 1:
-Adds less liquid deposits and marketable securities.
-Less liquid than M1, as it includes assets (e.g. savings accounts) that require more time to convert into cash.
M3:
Broad Money - Part 2:
-An extension of M2, including larger and less liquid financial assets.
-Large time deposits, institutional money market funds, and other large liquid assets like repurchase agreements and commercial papers.
M4:
All-Inclusive Money Supply:
-Encompassing all other financial assets outside commercial banks that are relatively less liquid.
-Crypto & less liquid financial instruments, such as long-term savings accounts or instruments held outside banks.
What is wealth (with examples)?
Stock of goods owned or value of the stock (e.g. buildings, land, capital goods, debts owed to you).
What is income (with examples)?
The flow of money one receives over a period of time (e.g. market earnings, investment, wages).
What is depreciation?
The reduction of value of a stock of wealth over time.
What is net income?
Gross income – depreciation.
