Econ- Chap 10

Econ- Chap 10 - Overview-10 x The functions and measurement...

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Principles of Macroeconomics: Canadian Edition Overview-10 The functions and measurement of money The Bank of Canada and its functions Fractional reserve banking - how does it work? The money multiplier Monetary control-how does B of C control money supply?
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WHY MONEY? 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 regularly use to buy g&s from other people.
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Principles of Macroeconomics: Ch 10 Canadian Edition The Meaning of Money Money is the set of assets in the economy that people regularly use to buy goods and services from other people.
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Principles of Macroeconomics: Ch 10 Canadian Edition Three Functions of Money Medium of Exchange : anything that is readily acceptable as payment. Unit of Account : serves as a unit of account to help us compare the relative values of goods. Store of Value : a way to keep some of our wealth in a readily spendable form for future needs.
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Principles of Macroeconomics: Ch 10 Canadian Edition The Two Types of Money Commodity Money: something that performs the function of money and has alternative, non-monetary uses. Examples: Gold, silver, cigarettes Fiat Money: something that serves as money but has no other important uses. Examples: Coins, currency, debit cards
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Principles of Macroeconomics: Ch 10 Canadian Edition Money in the Canadian Economy Money Stock is the quantity of money circulating in the economy. Different ways of measuring the money stock in the economy: M1 M2
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Principles of Macroeconomics: Ch 10 Canadian Edition The most familiar forms of money used include: Currency Demand Deposits: balances in banks that depositors can access on demand by writing a check or using a debit card. Measurement of Money M 1
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Principles of Macroeconomics: Ch 10 Canadian Edition Measurement of Money A broader measure of money than M 1, includes: M1 +Savings Deposits +Personal Term Deposits M 2
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M1 and M2
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Principles of Macroeconomics: Ch 10 Canadian Edition Where is All The Currency? In 2006 there was about $46 billion of Canadian currency outstanding ($1,797 in currency per adult). Banks and companies hold some. The outstanding currency may be in the hands of tax evaders, drug dealers and other criminals.
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Money Debit cards are money. Like cheques, they allow direct access to money.
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This note was uploaded on 06/14/2011 for the course ECON 1000 taught by Professor Unknown during the Spring '10 term at Carleton CA.

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Econ- Chap 10 - Overview-10 x The functions and measurement...

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