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demand deposites = money held by public in form of deposits withdrawn on demand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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