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12 Cards in this Set
- Front
- Back
- 3rd side (hint)
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Technical Functions of Money |
• Medium of exchange: eg. Exchange R10 for a chocolate. • Common unit of account (or measure of value): eg. Chocolate is worth or costs R10. • Store of Value: eg. you put R1 000 I'm the bank, it will still be R1 000 later. • Standard of deferred payments: Do not uses all of it at once. |
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Calculation for Money Supply |
Money supply = M1 + M2 + M3 |
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What M1 Consist of |
• Coins • Bank notes • Demand deposits |
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What M2 Consists of |
• M1 • Short-term deposits (invested for <1 month) • Medium-term deposits (invested for 1 <___<6 months). |
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What M3 Consists of |
• M2
• Long-term deposits (invested >6 months) |
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Monetary System |
• Currency: refers to all coins and bank notes that are used in a country. Too much in circulation leads to inflation. Not enough money makes completing transactions difficult.
• Institutions: Reserve Bank, commercial banks and other financial institutions. Commercial bank is link between Reserve Bank and participants in economy. Other financial institutios eg. insurance companies and mutual banks. Reserve Bank, commercial banks and other financial institutions. Commercial bank is link between Reserve Bank and participants in economy. Other financial institutios eg. insurance companies and mutual banks. • Money Creation: bank creates money when they lend money to clients. By increasing amount of demand deposits, bank has increased money supply. • Documentation: mortgage bonds, share certificates, government stock and debentures. • Monetary Policy: includes rules and regulations implemented by the Reserve Bank to control money supply. Includes interest rate policy, money supply, inflation targeting and exchange rate policies. |
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Stabilising the Value of Money |
• Fiscal Policy • Monetary Policy |
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Fiscal Policy |
• Taxation • Government Spending |
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Monetary Policy |
• Interest Rate: Repo rate charged by Reserve Bank to commercial banks. Prime rate charged by commercial banks to clients.
• Money Supply: Money in circulation must not exceed Q of goods available.
• Inflation Targeting: Aim to keep inflation within certain targets.
• Other Measure |
Stabilising the Value of Money |
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Basic Functions of the Central Bank (Reserve Bank) |
• Issues notes and coins • It is the banker's bank • Banker to the government • Custodian of gold and foreign reserves • Lender of last resort • Central clearing bank • Credit control • Economic and statistical information |
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Monetary Policy |
• Influences and controls - money supply - rate of interest ~ in order to strive for economic growth ~ low unemployment ~ relatively stable prices |
Definition |
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Monetary Policy Instruments |
• Interest Rate: If bank has shortage of cash, borrows from oth r bank or financial institution. Eventually borrows from central bank. Reserve Bank raises repo rate to discourage too much credit. • Open Market Transaction: security instruments eg. government bonds and Treasury bills. Sells securities to banks. Buys it back to increase money in circulation. • Stipulating cash reserve requirements: Cash kept in vaults in the Reserve Bank. • Credit Ceiling: maximum amount of credit that Reserve Bank allows. • Credit Rationing • Disciplinary Measures • Moral Persuasion |
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