Lecture 15 - ECO100 - Gustavo Indart Slide 1 ECO 100Y ECO...

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Unformatted text preview: Gustavo Indart Slide 1 ECO 100Y ECO 100Y Introduction to Introduction to Economics Economics Lecture 15: Lecture 15: The Banking System and The Banking System and the Supply of Money the Supply of Money Gustavo Indart Slide 2 Two Views of Money Two Views of Money Classical view: Changes in money supply lead to equal proportional changes in all prices Therefore, no change in relative prices Money is neutral (i.e., doesnt affect the level of real output) Modern view: Money is neutral only in the long-run Changes in money supply lead to increases in real output in the short-run Gustavo Indart Slide 3 Definition and Functions of Definition and Functions of Money Money Money is a medium of exchange A medium of exchange is anything that is acceptable in exchange for goods and services Functions of money: A medium of exchange A unit of account A standard of deferred payments A store of value Gustavo Indart Slide 4 Different Forms of Money Different Forms of Money Commodity money Convertible paper money Fiat money Deposit money Gustavo Indart Slide 5 Three Measures of Money Three Measures of Money M1 currency in circulation + demand deposits M2 M1 + notice deposits M3 M2 + fixed-term deposits Gustavo Indart Slide 6 Definitions Definitions Money supply: M = CU P + D Currency: CU = CU P + CU B Bank Reserves: RE = CU B + D CB Gustavo Indart Slide 7 Bank of Canada Bank of Canada Canadas central bank Controls and regulates financial institutions and markets Responsible for monetary policy Relatively independent from central government Gustavo Indart Slide 8 Functions of the Bank of Canada Functions of the Bank of Canada Banker to the commercial banks Lender of last resort to commercial banks Banker to the government Controller and regulator of the money supply Regulator and supporter of money markets Gustavo Indart...
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This note was uploaded on 01/16/2011 for the course ECO ECO100 taught by Professor Inheart during the Fall '09 term at University of Toronto- Toronto.

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Lecture 15 - ECO100 - Gustavo Indart Slide 1 ECO 100Y ECO...

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