ECON 105 Chapter Notes - Chapter 10: Monetary Base, Debit Card, Commodity Money
9 views2 pages
15 Aug 2016
School
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