Macroecon chapter 11

Question 1

Functions of money (3)

Answer 1

• Medium of exchange
• Store of value
• Unit of account

Question 2

Δbarter economy

Answer 2

Need a double coincidence

Question 3

Formats of money (3)

Answer 3

• Physical (metal)
• Paper
• Numerical

Question 4

Gresham Law

Answer 4

Legally overvalued currency will drive legally undervalued currency out of circulation

Question 5

Type of reserve (R) (2)

Answer 5

• Cash
• Deposit at Central Bank

Question 6

Institutions of the modern banking system (2)

Answer 6

• Central bank (Bank of Canada)
• Financial intermediaries

Question 7

Basic functions of BoC (3)

Answer 7

• Banker to the commercial bank
• Banker to the federal government
• Regulator of the money supply

Question 8

Commercial bank functions (4)

Answer 8

• Intermediaries in credit market
• Interbank activities
• Clearing house
• Profit seeking

Question 9

Commercial bank reserves (5)

Answer 9

• Fractional reserve
• Reserve ratio (v)
• Target reserve ratio (v*)
• Excess reserve
• Confidence and risk

Question 10

Reserve ratio formula

Answer 10

Reserve/Deposit

Question 11

Assumption in money creation by commercial banks (2)

Answer 11

• Constant target reserve ratio
• No cash drain (C=0)

Question 12

Cash drain formula

Answer 12

Cash/Deposit

Question 13

ΔDeposit formula

Answer 13

ΔReserve/v+c

Question 14

Total deposit formula

Answer 14

Total loan + total reserve

Question 15

Money supply formula

Answer 15

Currency in circulation + Bank deposit

Question 16

Kinds of deposits (5)

Answer 16

• Demand deposits (cheque account)
• Saving deposit
• Term deposit
• Money market mutual funds
• Money market deposit account

Question 17

Difference between M2 and M2+

Answer 17

M2: CC + D + notice deposits at chartered bank
M2+: M2 + similar deposits at other financial institutions

Question 18

Near money

Answer 18

Liquid assets easily convertible into money without risk or significant loss of value

Question 19

Functions of near money (2)

Answer 19

• Store value
• Unit of cost

Question 20

Is near money a media of exchange?

Answer 20

No

Question 21

Example of near money

Answer 21

Term deposit

Question 22

Money substitute

Answer 22

Medium of exchange but not a store value

Question 23

Example of money substitute

Answer 23

Credit card