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Final

Final Exam Note

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Department
Economics
Course
ECON 1010
Professor
Xueda Song
Semester
Winter

Description
Chapter 24 Money commodity or token acceptable as means of payment Barter direct exchange goods double coincidence of wants costly Medium of Exchange accepted in exchange for goodsservices Unit of Account measure for stating the pricesStore of Value money held later for exchange Currency bank notes coins deposits cheques are only instructions to bankcredit cards are not money M1 currency outside bankchequable deposits M2 M1all other depositsThe Banking System Depository Institution takes deposits from householdsfirms and loans othersGoal to max wealth interest rate it lends exceeds interest rate it pays on deposits4 benefits liquidity pool risk lower cost of borrowing monitoring borrowersChartered Banks private firm chartered under Bank Act of 1992 to receive depositsmake loansCredit Unions operates under Cooperative Credit Association Act receives depositsloansTrustMortgage Loan Company privately owned depository institutionTypes of Assets depositors funds 1 Reserves cashdeposits at Bank of Canada 2 Liquid assets govn Treasury bills chequing deposit 3 Securities long term govn bonds mortgagebacked securities4 Loans fixed amount of money for agreedupon periods of time Bank of Canada central bank of Canada regulates depository institutions sole issuer of bank notes Banker to BanksGovn accepts deposits from depository institutions make the payments system Lender of Last Resort makes loans when bank system as whole is short of reservesAssets government securities and loans to banks Liabilities bank notes and deposits of banksgovernment Monetary Base Bank of Canada notescoinsdepository institutions deposits at bank Payments System banks make payments to settle transactions by their customers Large Value Transfer System LVTS electronic payments system for chartered banks Automated Clearing Settlements System ACSS smaller payments than LVTS debit cardABM Banks create money lends out excess reserves reservesnotescoinsdeposits at B of C deposits created by monetary base desired reserves desired currency holding Desired Reserves ratio of reserves to deposits that banks want to hold Excess reservesactual reservesdesired reserves Currency Drain RatiocurrencydepositsMoney Creation Process 1Banks have excess reserves 2Banks lend excess reserves3Money quantity increases 4New money used to make payments 5Some new money remains on deposit 6Some new money is current drain 7Desired reserves increase 8Excess reserves decrease Money Multiplierchange in quantity of moneychange in monetary base 1aab Influences on Money Holding Price Level price increases quantity of nominal money money measured in dollars but doesnt change quantity of real money nominalprice Nominal Interest Rate opportunity cost of holding wealth rather than interestbearing assetnominal interest risesdecrease holding money Real GDP increase real GDPincreases quantity of holding money Demand for Money QD of real moneyinterest rate interest rate rises QD real money decreases Money Market Equilibrium quantity demand of moneyQuantity Supply of money
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