week 8 Flashcards
1
Q
money
A
- assets in the economy used in transactions of buying goods and services
2
Q
functions of money
A
- medium of exchange
- > avoids bartering
- unit of account
- > basic yardstick to measure value
- store of value
- > a way of holding wealth
3
Q
kinds of money
A
- commodity money: gold, silver, shell, cigarettes
- flat money: paper money
4
Q
measuring money
A
Mo; currency, notes and coins in circulation
M1; Mo + check accounts
M3: M1 + all other bank deposits
Broad money: M3 + deposits at non-bank financial institutions
5
Q
Money Supply
A
- Australia’s notes are printed by note printing australia
6
Q
bank reserves
A
- deposits that banks have received but have not loaned out
- assets held by banks to cover withdrawals from depositors and cheques written on their accounts
7
Q
reserve banking system
A
- first state bank is only a depository institution
- 100% reserve banking system: banks hold all the money deposited in them
8
Q
fractional reserve banking system
A
- only a small part of the deposits are withdrawn or used by the depositors at any time
9
Q
reserve ratio
A
- fraction of total deposits the bank holds as reserves
10
Q
Money and prices
A
- close link between amount of money circulating in the economy and the general level of prides
11
Q
velocity of money
A
- measures at a certain period of time
- defined as the value of transactions completed in a period of time / stock of money required to make those transactions
12
Q
RBA roles
A
- maintaining stability of the currency
- > e.g. low inflation
- oversight and regulation of financial markets
13
Q
How does RBA conduct MP?
A
- targeting the overnight cash rate
- RBA announces a cash rate and then either injects cash or removes cash from the short-term money market.
- ensure that the target rate is the equilibrium rate
- used as a benchmark rate from which other interest rates in the economy are determined
14
Q
open market operation
A
- excess supply of funds in the OCM, it will withdraw funds from market by selling government bonds.
- Takes in cash from commercial banks thus reducing cash in the system
- excess demand -> buying gov. bonds and increase funds
15
Q
bonds
A
- type of financial asset; the issuer of a bond is, in effect, seeking to borrow money
- a legal promise to repay a loan
