ECN 204 Lecture Notes - Lecture 10: Fractional-Reserve Banking, Payments Canada, Cheque Clearing
10 Dec 2017
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Document Summary
The functions of money: money does what money dies, medium exchange (eliminate double coincidence of wants, measure of value (unit of account, store of value. Liquidity- ease with which an asset can be converted to cash with little or no purchasing power. The components of the money supply: money definition m1, currency: coins + paper money, token money, bank of canada notes, demand deposits, about of m1. If price level is 1. 0, value of dollar is 1: d=1/p, price rises to 1. 20, d falls to 0. 833, a 20% increase reduces value of dollar by 16. 6% Inflation and acceptability: run away inflation- prices continually rise over a period of time, d decreases in worth, stabilizing the purchasing power of money. Liquidity: overnight loans rate paid on overnight loans to cover temporary shortages of reserves. The monetary multiplier: definition, 1/desired reserve ratio = 1/r, maximum demand deposit creation, excess cash reserves x monetary multiplier or d= e x m, reversibility.
