Summary Background Information Lecture 6

Summary Background Information Lecture 6 - Summary...

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Summary Background Information Lecture 6 1. Barter: the direct trade of goods or services for other goods or services (highly inefficient, because it requires that each party to a trade has something that the other party wants – double coincidence of wants) 2. Unit of account: a measure of economic value 3. Store of value: an asset that serves as a means of holding wealth 4. Money: is anything that serves as a medium of exchange 4.1. M1: sum of currency outstanding and balances held in current accounts 4.2. M2: all the assets in M1 plus some additional assets that are usable in making payments but at greater cost or inconvenience than the use of currency or cheques 4.3. M3: all assets in M2 plus marketable securities with a high degree of liquidity and price certainty 5. Bank reserves: cash or similar assets held by commercial banks for the purpose of meeting depositor withdrawals and payments 6. 100 per cent reserve banking:
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Unformatted text preview: a situation in which banks’ reserves equal 100 per cent of their deposits 7. Reserve-deposit ratio: bank reserves divided by deposits 8. Fractional-reserve banking system: a banking system in which bank reserves are less than deposits so that the reserve-deposit ratio is less than 100 per cent 9. Open-market operations (OMOs): open-market purchase and open-market sales 10. Open-market purchase: the purchase of government bonds from the public by the central bank for the purpose of increasing the supply of bank reserves and the money supply 11. Open-market sale: the sale by the central bank of government bonds to the public for the purpose of reducing bank reserves and the money supply 12. Velocity: a measure of the speed at which money circulates (V = P x Y / M) 13. Quantity equation: money times velocity equals nominal GDP (M x V = P x Y)...
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  • Spring '14
  • Fractional-reserve banking, bank reserves

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