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Chapter 12 - Money, Banking, and Money Creation (with important formulas)

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ECN 204
Thomas Barbiero

Chapter 12 Money, Banking, and Money Creation 12.1 The Definition and Functions of Money Money is what money does Medium of exchange we use it for exchange 1. Money substitutes for barter, which require a double coincidence of wants. (I may want what you produce but you may not want to exchange for what I have) Measure of value measures the value of goods and services Store of value can hold wealth in money 12.2 The Components of the Money Supply Money definition M1 Currency: coins and paper money 1. Token money 2. Bank of Canada notes Demand deposits: chequing account 1. About of MI Institutions that offer demand deposits 1. Chartered banks are the primary depository institutions Two qualifications: 1. Currency held by the Bank of Canada and chartered banks is excluded from M1 and other measures of the money supply otherwise it would be counted twice 2. Also excluded from the money supple are any deposits of the federal govt. or the Bank of Canada that are held by chartered banks Money definition M2 M1 + near monies 1. Near monies are highly liquid financial assets that do not directly function as a medium of exchange but can be readily converted into currency Money definition M2+ M2+ is M2 plus 1. Deposits at trust and mortgage loan companies
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