Macro Econ Ch 24-25
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Any commodity or token that is generally accepted as payment.
Money has three other functions:
- Medium of exchange
- Units of account
- Store of Value
- The notes and coins held by indiviudals and businesses.
- *Deposits at banks and other depository institutions also count as money*
M1 consists of currency and
- Chequable depostis of individuals ad businesses.
- M1 does not include currency held by banks or currency and chequable deposits of the bank of Canada.
M2 consits of
M1 plus all other deposits.
Liquidity is the property of
Being easily converted into a means of payment without loss of value.
notes and coins in a bank vault or a depost account at the Bank of Canada
Liquid assests are
- government of Canada treasury bills and commercial bills.
- Theses assets are the banks' first line of defence if they need reserves.
- government of Canada bonds and other bonds such as mortage-backed securities.
- These assets can be converted into reserves but at prices that fluctuate.
- Because the prices fluctuate, these assets are riskier than liquid assets, but they also have a higher interest rate.
- commitments of funds for an agreed-upon period of time.
- Banks make loans to corporations to finaince the purchase of capital.
- They also make mortgage loans to finance the purchase of homes, and personal loans to finance consumer durable goods.
- Loans are the riskiest asset of a bank.
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