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Chapter 24

ECON 1010 Chapter Notes - Chapter 24: Credit Union, Debit Card, Cheque Clearing


Department
Economics
Course Code
ECON 1010
Professor
Steven Edwards
Chapter
24

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ECON1010 – Chapter 24 – February 25
Chapter 24 – Money, the Price Level, and Inflation
Money – any commodity or token that is generally acceptable as a means of payment
Means of payment – a method of settling a debt
Money serves as 3 other functions:
1. Medium of exchange – any object that is generally accepted in exchange for goods
and services. Barter is a direct exchange of goods or services with other goods or
services. Double coincidence of wants occurs sometimes when bartering (you must
look for someone who wants the goods you want to exchange for, whereas money is
always accepted and this doesn’t occur).
2. Unit of account – an agreed measure for stating the prices of goods and services.
The price of an item allows you to measure its opportunity cost easier.
3. Store of value – money can be held and exchange later for goods and services.
Something that must have a stable value, therefore a low inflation rate is needed,
must be durable, and impossible to counterfeit and trusted, everyone must be using it.
In Canada, money consists of:
1. Currency – notes that are held by individuals and businesses. Notes are declared
money while the ones in the banks are not currency because they are not being held.
It is good for buying low price items and settling small debts.
2. Deposits at banks and other institutions – trust and mortgage companies, credit
unions and caisses populaires, it can be used to make payments
There are two official measures of money in Canada:
1. M1 – consists of currency held by individuals and businesses plus chequable deposits
owned by individuals and businesses (it doesn’t include money held in banks and
owned by the government)
2. M2 – consists of M1 plus all other deposits (non chequable deposits and fixed term
deposits, mere money objects, liquidable assets, readily and easily transferable to
money)
Narrow definition of money is M1, the convenience of cheque (transfer ownerships) and
debit cards
Chequable deposits are money because they can be transferred from one person to
another by writing a cheque or using a debit card
M1 and M2 is money
Liquidity – the property of being easily convertible into a means of payment without loss
in value (M2)
Deposits are money and cheques are not
Credit cards are not money – buy with money you don’t have, enables one to
economize on the use of money, allows you to hold less currency and fewer demand
deposits for the purposes of transactions
Banking systems in Canada:
1. Depository institutions – a private firm that takes deposits from households and
firms and makes loans to other households and firms. They provide services such as
cheque clearing, account management, credit cards, and internet banking, all of
which provide an income from service fees. There are three types of depository
institutions:
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