9. Canadian Money Supply (Ch7)

Principles of Macroeconomics (with Xtra!)

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S ome people ask why the Bank of Canada can’t directly increase or decrease the money supply at will, since it regulates the supply of paper currency in circulation. The answer is that the bank notes issued by the Bank represent only a small portion of all the money circulating in the economy at any one time. The amount of money in circulation can be measured in a number of different ways. Some of these different measures, which are called monetary aggregates, are described below: • The currency (bank notes and coins) in circulation plus personal chequing accounts and current accounts at banks, are referred to as M1. • A broader measure, M2 , also includes personal savings accounts and other chequing accounts, term deposits, and non-personal deposits requiring notice before withdrawal. • But banks are not the only providers of deposit facilities, so an even broader measure of money is provided. M2+ includes all deposits at non- bank deposit-taking institutions, money-market mutual funds, and individual annuities at life
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This document was uploaded on 02/07/2008.

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