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Macro Chapter 10 - CHAPTER 10 THE MONETARY SYSTEM Key...

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CHAPTER 10 CHAPTER 10 THE MONETARY SYSTEM THE MONETARY SYSTEM
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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?
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What Money Is and It’s 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.
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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
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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
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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.
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Two Measures of Money Stock for the  Canadian Economy
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BANK OF CANADA Central bank : an institution designed to regulate the money supply in the economy.
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