Chapter 26: Money and Banking
Medium of exchange
store of value
unit of account
fully backed
fractionally backed
fiat money
the banking system and the bank of canada
target reserve ratio and excess reserves
the creation of deposit money
demand and term deposits
the money supply
near money and money substitutes
anything that is generally accepted in return for goods and services sold
money is a convenient means of storing purchasing power; goods may be sold toay for money and the money may then be stored until it is needed for some future purchase
earning and spending not synchronized
stable value
method of deferred payments
is a means for comparing the values of goods and services
accounting function -- common denominator
legal tender (paper money)
fiat money has value because 1). generally accepted and 2). backed by productive capacity of economy
banks issue more notes convertible to gold than gold in their vaults as reserves, and charge interest
demand deposites = money held by public in form of deposits withdrawn on demand
target reserves = reserves Bank wishes to hold
excess reserves = reserves held above target
reserve ratio = reserve / deposit
Money Supply = M = currency + deposits
term deposit = an interest-earining bank deposit, subject to notice before withdrawl. also called a notice deposit
near money is liquid assets that are easily convertible into money without risk of significant loss of value. They can be used as short-term stores of value but are not themselves media of exchange
money substitute = something that serves as a media of exchange but is not a store of value such as credit cards
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