deregulation:
the process by which legislation imposes fewer restrictions on the activities of an institution or industry
expectations of inflation:
a forecast of future inflation; the forecast can be extrapolated from past inflation alone, among many alternatives of generating such forecasts
globalization:
an expression for the growing integration of financial markets worldwide
inflation:
the rate of change in an aggregate price index such as the consumer price index (CPI)
intermediaries:
institutions involved in the act of transforming assets and liabilities that results in the creation of new assets and liabilities; also institutions that borrow funds from savers and lend them to borrowers, and that provide financial services
money:
a commodity or device of some kind used to complete transactions in goods and services; a medium of exchange
Bank of Canada:
the central bank of Canada, responsible for the conduct of monetary policy, it also acts as a banker for the federal government
barter:
an exchange of commodities without money; transactions of this kind are inconvenient because of the problem of the "double coincidence of wants"
bimetallism:
a monetary system based on the value of two precious metals, usually gold and silver
Canadian Payments Association:
the association responsible for cheque-clearing for all financial institutions in Canada; membership is mandatory for all chartered banks and the Bank of Canada, but many near-banks are also members
central bank:
the financial institution responsible for the conduct of a country's monetary policy; often, a central bank also acts as the banker for the central government
current account:
the part of the balance of payments that records the net change in exports and imports of goods and services
gold standard:
a monetary system wherein the exchange rate is fixed to the price of gold
Gresham's Law:
the dictum that bad money drives out good; if two currencies exist in an economy, the one that is least valuable will tend to circulate while the more valuable currency will be hoarded
liquidity:
the availability of funds to meet claims or the ease with which an asset can be sold
M1:
currency outside banks plus chartered banks' demand deposits net of the private sector float
M2:
M1 plus nonpersonal notice deposits and personal savings deposits at chartered banks
M2+:
M2 plus notice and term deposits at near-banks, generally, trust and mortgage loan companies
M3:
M2 plus nonpersonal fixed-term deposits at chartered banks plus foreign currency deposits of residents booked in Canada
medium of exchange:
something that is generally acceptable in exchange for goods and services
medium or unit of account:
something that circulates and provides a standardized means of evaluating the relative price of goods and services
money market mutual funds (MMMFs):
funds that issue shares to holders backed by high-quality short-term assets; used by financial institutions as an alternative to ordinary bank accounts
money supply (money stock):
some measure of aggregate liquidity in the economy; includes definitions such as M1 and M2
savings deposits:
bank deposits that typically earn a rate of return and are highly liquid
seigniorage:
the profit made from printing money
store of value:
the ability of money to command purchasing power in the future; considered one of the functions of money
term deposits:
bank deposits paying a market rate of return with limited liquidity
transactions costs:
the costs, financial and nonfinancial, of completing some economic transaction; does not include the purchase price of the item in question
demand for money function:
the desire to hold some form of money; usually represented as a function of income and a proxy for the opportunity cost of holding money
hyperinflation:
inflation where prices rise faster than 50% per month
monetization:
a situation in which the use of cash and cheques becomes increasingly common
money illusion:
the belief that nominal values are the same as real values; the individual does not understand that a price level change implies a change in the purchasing power of a given stock of money
optimal cash management approach:
the attempt by an individual to minimize the costs of holding a given stock of cash
quantity theory:
the theory that a direct relationship exists between the quantity of money in circulation and the price level: an increase in the quantity of money leads to a proportional increase in the price level; the relationship is summarized in the formula MV = Py, where M = stock money, V = velocity of circulation, P = price index, and y = measure of aggregate income
real balances:
a measure of the money stock divided by a price index; the purchasing power of a stock of money
velocity of circulation:
the turnover rate of money; usually measured as aggregate income (GDP) divided by a money stock measure
