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32 Cards in this Set

  • Front
  • Back

Money

Any asset that can be used as a means of payment for purchases and to settle debts.

Commodity Money

An asset with intrinsic value, such as a gold or silver coin, that is generally accepted as a means of payment for purchases and to settle debts.

Fiat Money

An asset with no intrinsic value, such as paper currency, that is generally accepted as a means of payment for purchases and to settle debts.

Medium of Exchange

An asset used in purchasing goods and services.

Barter

The direct trade of goods or services for other goods or services.

Unit of Account

A basic measure of economic value.

Store of Value

An asset that serves as a means of holding wealth.

M1

Sum of currency outside banks and balances held in demand deposits.

M2

All the assets in M1 plus some additional assets that are usable in making payments but at greater cost or inconvenience than currency or chequing accounts.

Bank Reserves

Cash or similar assets held by commercial banks for the purpose of meeting depositor withdrawals and payments.

100 percent Reserve Banking

A situation in which banks' reserves equal 100 percent of their deposits.

Reserve-Deposit Ratio


Bank reserves divided by deposits.


Desired reserve-deposit ratio=Bank Reserves/Bank deposits

Fractional-Reserve Banking System

A banking system in which bank reserves are less than deposits so that the reserve-deposit ratio is less than 100 percent.

Banking Panic

Occurs when there is a rush of withdrawals from the banking system made by depositors responding to news or rumors of impending bankruptcy of multiple banks.

Bank Run

Occurs when depositors of a particular bank respond to news or rumours of impending bankruptcy of that particular bank by rushing to withdraw their deposits from the bank.

Currency

Refers to bank notes and coins.

Seigniorage

Refers to the profit gained from the issue of paper money or coins.

Deposit Insurance

Is provided to financial institutions such as banks so that the deposits of their customers are insured in case the financial institution goes bankrupt.

Lender of Last Resort

An institution, typically a central bank, that will extend credit to financial institutions during a financial panic to keep the payments system operating smoothly.

Liquidity

Refers to the ease with which an asset can be converted to cash.

Key Policy Rate

A general term for the interest rate that the central bank controls to achieve its monetary policy objective.

Quantitative Easing

The unconventional monetary policy of actively creating central bank reserves for the purchase of financial assets.

Effective Lower Bound

The lowest practically feasible level for a central bank's key policy rate.

Credit Easing

The unconventional monetary policy of the central bank purchasing private-sector financial assets in order to reduce interest rate spreads.

Zero Interest Rate Commitment

A promise made by a central bank that it will maintain its key policy rate at the effective lower bound for an extended periods.

Open-Market Purchase

The purchase of government bonds from the public by the central bank for the purpose of increasing the supply of bank reserves.

Open-Market Sale

The sale by the central bank of government bonds for the purpose of reducing bank reserves.

Open-Market Operations

Open-market purchases and open-market sales

Reserve Requirements

Set by some central banks, the minimum values of the ratio of bank reserves to bank deposits that commercial banks are allowed to maintain; the Bank of Canada does not set reserve requirements

Government Debt Shifting

The transfer of government deposits by the central bank between the governments account at the central bank and the governments account at commercial banks.

Quantity Equation

An amount of money times its velocity equals nominal GDP


M x V = P x Y

Velocity of Money


A measure of the speed at which money changes hands in transactions involving final goods and services


V=(P x Y)/M