Chapter 10 The Monetary Systerm

Chapter 10 The Monetary Systerm - 101 1Money

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1Money “Money is the most important thing in the world"  George Bernard Shaw. Definition Barter  10-1
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Three Basic Functions of Money o Medium of Exchange o Store of Value o Unit of Account 10-2
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Definition of Liquidity  10-3
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Evolution of Money 10-4
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Commodity money Gold Standard o Paper money used to be backed by the value of gold –  meaning that is was redeemable for gold o But now, money is not redeemable for anything except  itself – people hold it because they know others will accept is  as payment for goods and services 10-5
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Gresham’s Law “Bad money drives good money out of circulation” o Good money o Bad money o Examples of Gresham’s Law:   10-6
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o POW camps during WWII 10-7
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Modern money  Consists of: o Paper money  o (Bank of Canada notes and cheques)  o and coins o No intrinsic value;   fiat money See the Changing Face of Canadian Bank Notes 10-8
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http://www.bank-banque canada.ca/en/banknotes/general/character/index.html 10-9
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Definitions of the Money Supply M1 10-10 o = M2
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10-11
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M2 M2+ 10-12
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10-13
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Bank of Canada Image: http://www.bank-banque-canada.ca/en/images/bank_dc.jpg Other Central Banks: The Bank of England  o (The “Old Lady of Threadneedle Street”)
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This note was uploaded on 10/21/2010 for the course ECON 102 taught by Professor ? during the Fall '08 term at Waterloo.

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Chapter 10 The Monetary Systerm - 101 1Money

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