Lecture-15

Lecture-15 - Lecture 15: Money and Banking Reference...

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Unformatted text preview: Lecture 15: Money and Banking Reference Chapter 11 LEARNING OBJECTIVES 1. The definition and functions of money. 2. What constitutes the supply of money. 3. What backs Canadas money supply. 4. The components of money demand. 5. How the equilibrium interest rate is determined in the money market. 6. About the structure of the Canadian financial system. 7. About recent developments in money and banking. I. The Definition and Functions of Money Money is what money does.Anything that performs the function of money is money . A. Medium of exchange : Money can be used for buying and selling goods and services. B. Unit of account : Prices are quoted in dollars and cents. C. Store of value : Money allows us to transfer purchasing power from present to future. It is the most liquid (spendable) of all assets, a convenient way to store wealth. 1) Inflation can erode the value of money to some extent. II. Supply of Money A. Narrow definition of money : M1 includes currency and demand deposits (see Table 11-1). 1. Currency (coins + paper money) held by public. a. All coins are token money, which means its intrinsic value is less than the face value of the coin. The metal in a dime is worth less than 10. b. All paper currency consists of Bank of Canada Notes issued by the Bank of Canada. 2. Demand deposits are included in M1, since they can be spent almost as readily as currency and can easily be changed into currency. currency....
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Lecture-15 - Lecture 15: Money and Banking Reference...

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