Summary money and banking Chapter 12

Summary money and banking Chapter 12 - Chapter12...

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Chapter 12 Money and the Banking  System
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Chapter 12 What is Money?   The Functions of Money   How Banks Create Money    The Money Multiplier   
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What is Money? Money Anything that is generally accepted in  exchange for goods or services.   Many things have been used as money,  including tobacco, furs, and cigarettes. 
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What is Money? Currency   - coins and paper notes used to  buy goods and services and pay debts. 
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What is Money? Metal coins are used throughout the world,  but have some disadvantages: Heavy and bulky. Gold and silver not available in sufficient  quantities to meet demand for money. Metal coins are usually supplemented by  paper currency. 
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What is Money? Legal tender   - coins and paper notes  officially declared to be acceptable for the  settlement of financial debts.  Legal tender is fiat money  – a means of  exchange established by government  declaration.  
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What is Money? Demand deposits   - balances in banks  that can be withdrawn on demand.  Access with a cheque or debit card.  Have replaced paper and metallic currency  as the major source of money.  1. Safety  2. Lower transaction costs 3. Permanent record   
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What is Money? 1. Safety  Paper money is readily transferable;  Demand deposits are not.  With stolen cheques, must forge  signature and provide identification 
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11.1 What is Money? 2. Lower Transaction Costs   Cheaper, easier, and safer to send  cheques.  In very small transactions, gains in safety /  convenience are outweighed by time and  cost of writing and processing cheques. 
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What is Money? 3. Permanent Record    Record of financial transactions useful for  business, tax purposes.  Paper currency popular for activities where  participants prefer no record. 
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What is Money? Savings deposits   – funds that cannot be  used for payment directly.  Generally pay higher interest rates than  demand deposits.     
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What is Money? Liquidity   – the ease with which one asset  can be converted into another, or into goods  and services.  Money is the most liquid of assets.     
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What is Money? The Money Supply    
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Summary money and banking Chapter 12 - Chapter12...

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