Macro%20Chapter%2010

Macro%20Chapter%2010 - CHAPTER 10 CHAPTER 10 THE MONETARY...

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Unformatted text preview: CHAPTER 10 CHAPTER 10 THE MONETARY SYSTEM THE MONETARY SYSTEM Key Questions What assets are considered money? What are the functions of money? The types of money? The Bank of Canada/ Federal Reserve? What role do banks play in the monetary system? How do banks create money? How does the Bank of Canada/Federal Reserve control the money supply? What Money Is and Its Importance Without money, trade would require barter , the exchange of one good or service for another. Every transaction would require a double coincidence of wants the unlikely occurrence that two people each have a good the other wants. Most people would have to spend time searching for others to trade with a huge waste of resources. This searching is unnecessary with money - the set of assets that people use to buy goods and services from other people. The 3 Functions of Money Medium of exchange : an item buyers give to sellers when they want to purchase goods and services Unit of account : the yardstick people use to post prices and record debts Store of value : an item people can use to transfer purchasing power from the present to the future 2 Kinds of Money Commodity money: takes the form of a commodity with intrinsic value. Fiat Money: is money without intrinsic value; used as money because of government decree Money in the Canadian Economy M oney Supply: the quantity of money available in the economy What assets should be considered part of the money supply? Here are two candidates: Currency : the paper bills and coins in the hands of the (non-bank) public Demand deposits : balances in bank accounts that depositors can access on demand by writing a check or using a credit card. Two Measures of Money Stock for the Canadian Economy BANK OF CANADA Central bank : an institution designed to regulate the money supply in the economy....
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Macro%20Chapter%2010 - CHAPTER 10 CHAPTER 10 THE MONETARY...

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