Economics 191 Part 8 Money, Finance And Inflation

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Money

Back 1

Assets that are generally accepted in exchange for goods and services

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Asset

Back 2

Anything of value

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Commodity money

Back 3

A good that is used as money that has independent value of its own, like gold. If there wasnt money then people would have to barter which relies on the double coincidence of wants. 

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The criteria of money

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1. Must be acceptable to most traders

2. Standardised quality

3.Durable

4.Valuable relative to weight

5.Divisible

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Fiat Money

Back 5

Money that doesnt have indendent value by is authorised by a central body and doesnt have to be exchanged at the bank for gold or other commodity money.

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Currency

Back 6

Notes and coins held by the public, not including money at the bank

 

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M1 Currency

Back 7

The narrowest defintion of money supply, all money held by the population (not the banks)+ deposits by them in the banks

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M3 Currency

Back 8

M1+ term deposits and credit unions etc

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Broad Money

Back 9

M3+ deposits into non banks, like finance companies etc

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Credit

Back 10

Isnt a form of money but is used as a main money measure

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Reserves

Back 11

Deposits that a bank keeps as cash in its vault or on deposit with the RBNZ. A loan is an asset to a bank while deposits are a liability

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Credit multiplier

Back 12

Is the ration of the amount of deposits creasted by banks to the amount of new reserves.

Deposits/Reserves  / Reserve ratio

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3 key things of the financial system 

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-Risk Sharing

-Liquidity

-Information

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The role of the RBNZ

Back 14

To maintian financial stability through  monetary policy.

 

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Monetary Policy 

Back 15

Uses the Official Cash Rate, which is the basis of the overnight mone market interest rate

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Money Management

Back 16

The govt manages debt to fund any revenue shortfall. Short-term: Treasuary. Long-term: Government stock issue

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Exhange rate management

Back 17

Is determined by the interaction of supply and demand of NZ$.

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Price Level

Back 18

A measure of average prices in the economy

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Inflation

Back 19

A sustained increase in the price level

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Inflation rate 

Back 20

The percentage increase in the price level from one year to the next

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Consumer Price Index

Back 21

Has three sources of bais:

-Substitution

-Increase in quality

-New Product

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Anticipated inflation

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-Menu costs

-Those holding paper moeny will suffer

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Unanticipated Inflation

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-Those with fixed costs will suffer, creditors will loss while borrowers gain 

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Deflation

Back 24

A deflation in the general price level in the economy. Causes increased debt burdens, reduces asset values, wages may fall in response. Interest rates rise.

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Hyperinflation

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Extremely rapid increases in the general price level often associated with politicial instability

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Classical theory of Inflation

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Links changes in the price level to changes in the amount of moeny circulating in the economy. More money=more spending=pressure on supply=prices increase

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Cost-push inflation

Back 27

Inflation that occurs because of a negative supply shock or anything that reduces supply of goods and services.

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Net Exports AKA Trade Balance

Back 28

Exports-Imports also known as trade balance

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Trade deficit/surplus

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Deficit is when you import more than you export, surplus is when you export more than you import

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Net Capital Outflow 

Back 30

Refers to the purchase of foreign assets but domestic. The purchase of domestic assets by foreigners. 

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Current Account Balance

Back 31

The Sum of trade balance and net foreign income

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International trade is effected by

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International prices, the nominal exhange rate and the real exhange rate.

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Nominal Exchange Rate

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The rate at which a person can trade currency of one country for that of another

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Real Exchange Rate

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The rate that you can trade goods and services of one country for that of another,it depends on the nominal exchange rate and domestic prices,

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Purchasing power parity

Back 35

An extreme= exchange rates and domestic prices will tend to adjust so that everything cost the same everywhere. If this werent true (ignoring transportation costs) then markets could be exploited 

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Net Foreign Debt

Back 36

The difference between the anount NZ lends to other countries and the amount that NZ borrows froms overseas