ECON 1002 Chapter Notes - Chapter 10: Market Liquidity, Commodity Money, Monetary Policy

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The set of assets in the economy. People use money to buy goods and services from other people. Medium of exchange: an item that buyers give to sellers when they want to buy goods or services. Unit of account: yardstick 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. Monetary policy is managed by bank of canada. Asset can be converted into something of exchange. Quantity of money that is available in economy. Setting of the money supply by the central bank. Increase or decrease of quantity of cad $ in the economy. Central bank can control supply of money through its influence on the entire banking system. Role played by commercial banks in the monetary system: One: simple case of 100 % reserve banking. Currency is the only form of money. Banks hold only a fraction of deposits as reserves.

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