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Lecture 11

ECON102 Lecture Notes - Lecture 11: Stephen Poloz, Fiat Money, Credit Union

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J.Scott Beesley

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February 11, 23 2016
Chapter 10 – The Monetary System
In this chapter, we begin to examine the role of money in the economy;
We discuss what money is, the various forms that money takes, how the banking system helps create money, and how the government
controls the quan!ty of money in circula!on
The Meaning of Money
The De#nion of Money
Money: The set of assets in the economy that people regularly use to buy goods and services from other people
The Funcons of Money
Medium of Exchange: An item that buyers give to sellers when they want to purchase goods or services
Unit of Account: The yards!ck people use to post prices and record debts
Store of Value: An item that people can use to transfer purchasing power from the present to the future Wealth
oThis is the total of all stores of value, including both monetary and nonmonetary assets
Liquidity: Describes the ease with which an asset can be converted into a medium of exchange
oMoney is the most liquid of assets
The Kinds of Money
Commodity Money: Money that takes the form of a commodity with intrinsic value
Fiat Money: Money without intrinsic value that is accepted as money because of government decree
Money in the Canadian Economy
The quan!ty of money circula!ng in the economy, called the money stock, has a powerful in(uence on many economic variables
Currency: These are the paper bills and coins in the hands of the public
Demand Deposits: These are the balances in bank accounts that the depositors can access on demand by wri!ng a cheque or using a
debit card
Two Measures of the Money Stock for the Canadian Economy
The Bank of Canada
The Bank of Canada (BoC): The central bank of Canada
Central Bank: An ins!tu!on designed to regulate the quan!ty of money in the economy
The Bank of Canada Act
Prior to the 1930s:
oBank notes were issued by the Department of Finance and the commercial banks
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