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10 Cards in this Set
- Front
- Back
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What is money |
The set of assests in an economy that people reguarly use to buy goods and services from other people |
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What are the main functions of the rba? |
- determine monetary policy [they set the national benchmark interest rate and control inflation - maintain financial stability in the australian banking system |
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What is liquidity |
The ease in which an asset can be converted into the economys medium of exchange (money is the economys medium of exchange, and is therefore the most liquid asset avail. It's not a good store of value because when prices rise, value of money falls) |
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What is leverage? |
The use of borrowed money to supplement existing funds for investment purposes. The leverage ratio is: total assets / bank capital |
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What are M1, M3 and Broad Money? |
M1: currency (notes and coins) and deposits with banks M3: all m1 and other ADI deposits from non ADI sector Broad Money: all m3 and deposits in non bank financial institutions (credit unions, building societies, ect) |
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3 functions of money |
1. Medium of exchange 2. Unit of account (measure and compare) 3. Store of value |
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What is the fractionak banking system? |
-Banks hold a fraction of the money deposited as reserves and lend out the rest -Reserves: deposits that banks havent lent out -Reserve rate ratio (RR): the fraction that banks hold as reserves When a bank makes a loan from its reserves (deposits) the money supply increases |
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What is the money multiplier? |
The amount of money the banking system generates with each dollar of reserve. = 1 / RR |
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Factors that affect the cost of money? |
-production opportunities -time preference for consumption -risk -inflation -RBA policy -level of federal budget deficit -foreign trade balance -level of business activity |
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What is the fisher effect? |
Relationship between inflation, and real and nominal interest |
