ECON 105 Chapter Notes - Chapter 10: Monetary Base, Debit Card, Commodity Money

9 views2 pages
15 Aug 2016
Department
Course
Professor
Ch. 10 – The Monetary System
- money = set of assets in an economy that ppl regularly use to buy goods & services
from other ppl
- functions of money:
1) medium of exchange
2) unit of account
3) store of value
- liquidity = ease w/ which an asset can be converted into the economy’s medium of
exchange
 money is most liquid asset avail
- commodity money = money that takes the form of a commodity w/ intrinsic value
(i.e. gold)
- fiat money = money w/o intrinsic value that is used as money b/c of gov decree
(i.e. paper money)
- money stock = quantity of money circulating (incl. currency, demand deposits, etc)
- currency = paper bills & coins in the hands of the public
- demand deposits = balances in bank accounts that depositors can access on
demand by writing a cheque or using debit card
- M1 = currency + demand deposits (narrow definition of money)
- M2 = M1 + saving deposits + term deposits
- central bank = institution designed to regulate quantity of money in economy
 issue currency, act as banker to commercial banks & gov, control quantity
of money avail in economy
- money supply = quantity of money available in the economy (currency + deposits)
- money policy = setting of money supply by policymakers in central bank
- reserve = deposits that banks have received but have not loaned out
- fractional-reserve banking = banking sys where banks hold only fraction of
deposits as reserves
- money multiplier = amount of money banking sys generates w/ each dollar of
reserves
money multiplier = 1/R
- bank capital = bank assets – bank liabilities
- leverage = use of borrowed funds to supplement existing funds for investment
purposes
- capital requirement = gov regulation specifying a minimum amount of capital,
intended to ensure banks will be able to pay off their depositors
- open market operations = purchase & sale of gov bonds by central bank
 buying bonds causes money supply to b/c the dollars the central banks
pays for the bonds amount of money in circulation
 selling bonds causes money supply to b/c public pays for bonds w/ its
holding of currency/deposits, amount of money in circulation
- foreign exchange market operations = purchase & sale of foreign money by the
central bank
find more resources at oneclass.com
find more resources at oneclass.com
Unlock document

This preview shows half of the first page of the document.
Unlock all 2 pages and 3 million more documents.

Already have an account? Log in

Get access

Grade+
$10 USD/m
Billed $120 USD annually
Homework Help
Class Notes
Textbook Notes
40 Verified Answers
Study Guides
1 Booster Class
Class+
$8 USD/m
Billed $96 USD annually
Homework Help
Class Notes
Textbook Notes
30 Verified Answers
Study Guides
1 Booster Class