Macroeconomics 24

Front 1

Front (Term)

Money

Back 1

Back (Definition)

Any commodity or token that is generally acceptable as a means of payment.

Front 2

Front (Term)

Money serves 3 functions:

Back 2

Back (Definition)

-Medium of exchange

-Unit of account

-Store of value

Front 3

Front (Term)

Medium of Exchange

Back 3

Back (Definition)

Any object that is generally accepted in exchange for goods and services.

Front 4

Unit of Account

Back 4

An agreed measure for stating the prices of goods and services.

Front 5

Store of Value

Back 5

It can be held and exchanged later for goods and services.

Front 6

Money consists of:

Back 6

-Currency

-Deposits at banks and other depository institutes

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Currency

Back 7

The notes and coins held by individuals and businesses.

Front 8

Deposits

Back 8

Also counted as money because the owners of the deposits can use them to make payments.

Front 9

Measures of Money

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M1: Currency held by individuals and businesses plus chequable deposits owned by individuals and businesses

M2: Consists of M1 and all other deposits.

Front 10

M1 & M2

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M1: Is money as chequable deposits and currency are a means of payment.

M2: Is money as they can be easily converted into a means of payment.

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What is money?

Back 11

-Deposits are money but cheques are not

-Credit cards are not money

Front 12

Depository Institute

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Private firm that takes deposits from households and firms and makes loans to other households and firms.

-Chartered banks, credit unions & causes populaires, trust and mortgage loan company

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Chartered Bank

Back 13

Private firm to receive deposits and make loans.

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Chartered Bank

Back 14

Private firm to receive deposits and make loans.

Front 15

Credit Unions & Caisses Populaires

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Cooperative organization that receives deposits from and makes loans to its members.

Front 16

Trust & Mortgage Loan Companies

Back 16

Privately owned depository that receives deposits, makes loans and acts as a trustee for pension funds and estates.

Front 17

Trust & Mortgage Loan Companies

Back 17

Privately owned depository that receives deposits, makes loans and acts as a trustee for pension funds and estates.

Front 18

What depository institutions do:

Back 18

-Cheque clearing

-Account management

-Credit cards

-Internet banking

-Most is from depositors used to make loans and buy securities to earn higher interest rate than that paid to depositors

Front 19

Reserves

Back 19

Notes & coins in a depository's vaults or its account at the Bank of Canada.

Front 20

Reserves

Back 20

Notes & coins in a depository's vaults or its account at the Bank of Canada.

Front 21

Liquid Assets

Back 21

Government of Canada treasury bills and commercial bills.

Front 22

Reserves

Back 22

Notes & coins in a depository's vaults or its account at the Bank of Canada.

Front 23

Liquid Assets

Back 23

Government of Canada treasury bills and commercial bills.

Front 24

Securities

Back 24

Government of Canada bonds and other bonds such as mortgage-backed securities.

Front 25

Reserves

Back 25

Notes & coins in a depository's vaults or its account at the Bank of Canada.

Front 26

Liquid Assets

Back 26

Government of Canada treasury bills and commercial bills.

Front 27

Securities

Back 27

Government of Canada bonds and other bonds such as mortgage-backed securities.

Front 28

Loans

Back 28

Commitments of funds for an agreed-upon period of time.

Front 29

Depository Institutions:

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-Create liquidity

-Pool risk

-Lower cost of borrowing

-Lower cost of monitoring borrowers

Front 30

Bank of Canada

Back 30

Canada's central bank that is:

-The banker to banks and government

-Lender of last resort

-Sole issuer of bank notes

Front 31

BOC Assets & Liabilties

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Asset:

-Government securities

-Loans to depository institutes

Liabilities:

-Bank of Canada notes

-Depository institution deposits

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Open Market Operation

Back 32

BOC conducts and open market operation, which is the purchase or sale of government securities by the BOC in the open market.

Front 33

Limiting Factors in Quantity of Loans

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-Monetary base

-Desired reserves

-Currency drain ratio

Front 34

Monetary Base

Back 34

Size of the base limits the total quantity of money a banking system can create.

Front 35

Desired Reserves Ratio

Back 35

Reserves a bank plans to hold. Ratio of reserves to deposits the bank plans to hold.

Front 36

Currency Drain Ratio

Back 36

Leakage of bank reserves into currency. The ratio of currency to deposits.

Front 37

Excess Reserves

Back 37

Bank's actual reserves exceed its desired reserves, causing an excess.

Front 38

Money Multiplier

Back 38

Ratio of the change in the quantity of money to the change in monetary base.

Front 39

Influences on Money Holding

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-The price level

-The nominal interest rate

-Real GDP

-Financial innovation

Front 40

Demand for Money

Back 40

Relationship between the quantity of real money demanded and the nominal interest rate when all other influences on the amount people wish to hold remain the same.

Front 41

Front (Term)

Demand for Money

Back 41

Back (Definition)

Interest Rate:

-Increase-Up along curve

-Decrease-Down along curve

Front 42

Front (Term)

Changes in Money Demanded

Back 42

Back (Definition)

-Increase-Shift right

-Decrease-Shift left

Front 43

Short Run & Change in Money Supply

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If there is a surplus of money and people hold more than quantity demanded they enter loan able funds market and buy bonds. If it decreases they sell bonds.

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Long-Run Equilibrium

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The price level will rise by the same percentage as the rise in the quantity of money.

Front 45

Quantity Theory of Money

Back 45

Proposition that in the long-run, an increase in the quantity of money brings an equal percentage increase in the price level.

Front 46

Quantity Theory of Money

Back 46

Proposition that in the long-run, an increase in the quantity of money brings an equal percentage increase in the price level.

Front 47

Velocity of Circulation

Back 47

Average number of times a dollar of money is used annually to buy the goods and services that make up GDP.

Front 48

Inflation Rate

Back 48

=Money Growth Rate - Real GDP Growth Rate