Term
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Definition
1) Medium of exchange
2) Unit of account
3) Store of value |
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Term
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Definition
1) Currency
2) Deposits at banks and other institutions |
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Term
| Official Measures of Money (2) |
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Definition
1) M1 = currency held by individuals and businesses + chequable deposits
2) M2 = M1 + all other deposits (non chequable and fixed) |
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Term
| Are Cheques and Credit Cards counted as money? |
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Definition
| No, they are not regarded as money. |
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Term
| Types of Depository Institutions (3) |
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Definition
1) Chartered banks
2) Credit unions and caisses populaires
3) Trust and mortgage loan companies |
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Term
| Types of Assets in Banks (4) |
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Definition
1) Reserves
2) Liquid assets
3) Securities
4) Loans |
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Term
| Economic Benefits provided by Depository Institutions (4) |
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Definition
1) Create liquidity
2) Pool risk
3) Lower cost of borrowing
4) Lower cost of monitoring borrowers |
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Term
| Who Regulates Depository Institutions? (5) |
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Definition
1) Dept. of Finance
2) Bank of Canada
3) Office of Superintendent of Finance Institutions
4) Canada Deposit Insurance Corp.
5) Provincial agencies |
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Term
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Definition
| Depository firms seeking ways to improve products, have brought large changes to the composition of money. |
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Term
| Bank of Canada Specialities (3) |
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Definition
1) Banker to banks and government
2) Lender of last resort
3) Sole issuer of bank notes |
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Term
| The Bank of Canada's Assets (2) |
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Definition
1) Government securities
2) Loans to depository institutions |
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Term
| The Bank of Canada's Liabilities (2) |
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Definition
1) Bank of Canada notes
2) Depository institution deposits |
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Term
| The Monetary Base is Equal to |
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Definition
| The Bank of Canada's liablities plus coins issues by the Royal Canadian Mint. |
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Term
| The Bank of Canada's Policy Tools |
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Definition
1) Open market operation
2) Bank rate |
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Term
| Factors that Limit the Quantity of Loans and Deposits (3) |
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Definition
1) The monetary base
2) Desired reserves
3) Desired currency holding |
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Term
| How Does the Money Creation Process Start? |
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Definition
| The Bank of Canada buys securities from banks so that they have excess reserves |
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Term
| Steps to Money Creation Process (8) |
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Definition
1) Banks have excess reserves
2) Banks lend excess reserves
3) The quantity of money increases
4) New money is used to make payments
5) Some of the new money remains in deposit
6) Some of the new money is a currency drain
7) Desired reserves increase because deposits increase
8) Excess reserves decrease |
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Term
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Definition
It is equal to (1+C/D)/(C/D + R/D)
C = Currency, D = Deposits, R = Reserves
It is equal to the ratio of change in quantity of money to the change in monetary base |
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Term
| The Influences on Money Holding (4) |
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Definition
1) The price level
2) The nominal interest rate
3) Real GDP
4) Financial innovation |
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Term
| The Velocity of Circulation |
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Definition
V = PY/M
P = Price level, Y = Real GDP, M = # of Money |
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Term
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Definition
MV = PY
M = # of Money, P = Price level, Y = Real GDP, V = Velocity Circulation |
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Term
| Inflation Rate Equation for Short/Long run |
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Definition
1) Short run: Inflation rate = money growth rate + rate of velocity change - Real GDP growth rate
2) Long Run: Inflation rate = Money growth rate - Real GDP growth (Velocity change is approx. = 0) |
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