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21 Cards in this Set
- Front
- Back
What is money? |
A form of asset that is used as a medium of exchange, as a unit of account and a store of value. |
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M3 is comprised of |
Currency (coins and notes), current deposits (cheque accounts) and non-current deposits (savings). |
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Currency is a form of token money which is |
Money for which the intrinsic value of the commodity used to hold the monetary unit is less than the recorded value of the money |
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Broad money refers to |
M3 plus the borrowings from non bank financials less the currency and bank holdings of these firms |
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Credit cards are |
Not money, and are just a simple method of obtaining short term loans |
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M0, the monetary base, is composed of |
Currency in public and banks plus the banks demand deposits with the RBA |
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The two components of the demand for money are |
The transactions demand and the assets demand for money |
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The transactions demand for money is |
THe demand for money as a medium of exchange, and depends on money GDP. Is vertical |
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The assets demand for money is |
The demand for money as a financial asset and store of wealth, which depends on interest rates and is downward sloping |
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The asset demand for money is downward sloping |
due to the opportunity cost of forgone interest payments when holding wealth as cash when interest rates are high as opposed to interest bearing assets |
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The total money demand is therefore |
Downward sloping and shifted to the right by the transactions demand. Money GDP changes shift this curve |
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The RBA is |
The banker to the banks that controls note issue, government banking and the employment of monetary policy |
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Banks have a reserve ratio which is |
the reserves that banks are required to maintain divided by the banks deposit liabilities |
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Any more held cash are known as |
excess reserves |
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Banks may loan out these excess reserves which results in |
the creation of money when deposits are created for the borrower in exchange for the IOU (loan) to the bank |
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In a multibank system |
This created money may then be desposited and loaned out repeatedly, creating more and more money |
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In general the amount of money created is given by |
The monetary multiplier m = 1/reserve ratio |
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If reserves are withdrawn |
The reverse effect can also take place by a factor of the money multiplier |
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Possible leakages of the money roll-on include |
Currency drains (cash payments remaining in circulation), transfer to NBFI's or larger excess reserves |
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Borrowing is likely to be low during |
recession, which causes the full multiplier effect to not take plcae |
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Banks may affect recession or inflation by |
holding back or increasing credit creation and thus affecting the economy |