ECON-1007EL Chapter Notes - Chapter 27: Commercial Bank, Fiat Money, Reserve Requirement
22 May 2018
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Chapter 27: Money and Banking
Definitions
Medium of Exchange
Anything that is generally accepted in return for goods and services sold
Barter
A system in which goods and services are traded directly for other goods
and services
Gresham’s Law
The theory that “bad”, or debased, money drives “good”, or undebased,
money out of circulation
Bank Notes
Paper money issued by commercial banks
Gold Standard
A currency standard whereby a country’s currency is convertible into
gold at a fixed rate of exchange
Fiat Money
Paper money or coinage that is neither backed by nor convertible into
anything else but decreed by the government to be legal tender
Deposit Money
Money held by the public in the form of deposits with commercial banks
Central Bank
A bank that acts as banker to the commercial banking system and often
to the government as well. Usually a government-owned institution that
is the sole money-issuing authority
Commercial Bank
A privately owned, profit-seeking institution that provides a variety of
financial services, such as accepting deposits from customers and
making loans and other investments
Clearing House
An institution in which interbank indebtedness, arising from the transfer
of cheques between banks, is computed and offset and net amounts
owing are calculated
Bank Run
A situation in which many depositors rush to withdraw their money,
possibly leading to a bank’s financial collapse
Fractional-Reserve System
A banking system in which commercial banks keep only a fraction of
their deposits in cash or on a deposit with the central bank
Reserve Ratio
The fraction of its deposits that a commercial bank actually holds as
reserves in the form of cash or deposits with the central bank
Target Reserve Ratio
The fraction of its deposits that a commercial back wants to hold as
reserves.
Excess Reserves
Reserves held by a commercial bank in excess of its target reserves
Money Supply (Supply in
Money)
The total quantity of money in an economy at a point in time
Term Deposit (Notice
Deposit)
An interest-earning bank deposit, subject to notice before withdrawal
M2
Currency plus demand and notice deposits at the chartered banks
M2+
M2 plus similar deposits at other financial institutions
Near Money
Liquid assets that are easily convertible into money without risk of
significant loss of value. They can be used as short-term stores of value
but are not themselves of media exchange
Money Substitute
Something that serves as a medium of exchange but is not a store of
value
Equations
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Anything that is generally accepted in return for goods and services sold. A system in which goods and services are traded directly for other goods and services. The theory that bad , or debased, money drives good , or undebased, money out of circulation. A currency standard whereby a country"s currency is convertible into gold at a fixed rate of exchange. Paper money or coinage that is neither backed by nor convertible into anything else but decreed by the government to be legal tender. Money held by the public in the form of deposits with commercial banks. A bank that acts as banker to the commercial banking system and often to the government as well. Usually a government-owned institution that is the sole money-issuing authority. A privately owned, profit-seeking institution that provides a variety of financial services, such as accepting deposits from customers and making loans and other investments.
