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Unit 2.3 – Money and the Bank of Canada

2013-I-30 r. !.M. Bennett" #.En$." #M# ENGR 3360U En$ E%o2.3-2

Chan$e Re%ord

2013-I-30 Initia& Creation

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Co'r(e )'t&ine for #art 2

2.1 Mi%roe%ono*i%(

2.2 Ma%roe%ono*i%(

2.3 Money and the Bank of Canada

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2013-I-30 r. !.M. Bennett" #.En$." #M# ENGR 3360U En$ E%o2.3-

2.3.1 Money and it( '(e(

Why do ,eo,&e '(e *oney

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Money

Money/ ny a((et that %an e '(ed a( a *ean( of ,ay*ent for ,'r%ha(e( and

to (ett&e det(

i(tori%a&&y" *any for*( hae een '(ed ('%h a( $o&d %oin(" %o4rie

(he&&(" 'no,ened $in ott&e(" ,&ayin$ %ard(" %a%ao ean(.

In dee&o,ed %o'ntrie(" 5*oney i( ,ri*ari&y no4 C'rren%y andChe%kin$ a%%o'nt a&an%e(

#rin%i,a& '(e(

Medi'* of e7%han$e

Unit of a%%o'nt

8tore of a&'e

9ey I(('e – i( it $enera&&y a%%e,ted in ,ay*ent

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2013-I-30 r. !.M. Bennett" #.En$." #M# ENGR 3360U En$ E%o2.3-:

Medi'* of E7%han$e

Medi'* of e7%han$e/

n a((et '(ed in ,'r%ha(in$ $ood( ; (eri%e(

Red'%e( tran(a%tion %o(t(

Barter/

the dire%t trade of $ood( or (eri%e( for other $ood( or (eri%e(

E.$. te7t ook 4ritin$ ; ho'(e ,aintin$ Car( for oran$e(

i(adanta$e( of arter

ery hi$h tran(a%tion %o(t( 'ire( do'&e %oin%iden%e of 4ant( and i*,ede( (,e%ia&i?ation

In ena&in$ $reater (,e%ia&i?ation" *oney in%rea(e( the ,rod'%tiity of the

entire e%ono*y

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2013-I-30 r. !.M. Bennett" #.En$." #M# ENGR 3360U En$ E%o2.3-@

Unit of %%o'nt and 8tore of Aa&'eUnit of a%%o'nt

a(i% *ea('re yard(ti%k of e%ono*i% a&'e

In Canada - 'nit of a%%o'nt i( Canadian do&&ar

8tore of a&'e

n a((et that (ere( a( a *ean( of ho&din$ 4ea&th By ho&din$ %a(h rather than (,endin$ it no4" ho'(eho&d( %an

tran(fer %on('*,tion fro* today to to*orro4

Note – no intere(t i( ,aid on %'rren%y - (o 4hy do ,eo,&e ho&d

%a(h" other than eno'$h for %'rrent tran(a%tion( Conenien%e – 't a&(o

ide a((et( fro* the a'thoritie( – e.$. dr'$

If ,ri%e( are fa&&in$

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2013-I-30 r. !.M. Bennett" #.En$." #M# ENGR 3360U En$ E%o2.3-D

Mea('rin$ the *o'nt of Money in the E%ono*y

Mea('re( of *oney

M1

8'* of %'rren%y o't(tandin$ and a&an%e( he&d in%he%kin$ a%%o'nt( at %hartered ank(

Narro4 definition

M2

&& the a((et( in M1 ,&'( noti%e ; (ain$( de,o(it(

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M1" M2" and M3" !an'ary 200+

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eter*inin$ the Money 8',,&y

he *oney (',,&y %on(i(t( of

C'rren%y

e,o(it a&an%e( he&d y %o**er%ia& ank(he deter*ination of the *oney (',,&y

de,end( in ,art on the ehaior of

%o**er%ia& ank(

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What deter*ine( the tota& a*o'nt of *oney

in %ir%'&ation

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Bank(

Credit----- %redo

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Wor&dF( )&de(t Bank

Banca Monte dei Paschi di Siena S.p.A.

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BankF( Ba&an%e 8heet

((et( - What ank( o4n

Kiai&itie( - What ank( o4e

Bank re(ere(Ca(h or (i*i&ar a((et( he&d y %o**er%ia&

ank( for the ,'r,o(e of *eetin$ de,o(itor

4ithdra4a&( and ,ay*ent( Not ,art of the *oney (',,&y

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Re(ere Bankin$

100 ,er%ent re(ere ankin$Bank(F re(ere( L 100 of their de,o(it(

Bank( rea&i?ed &on$ a$o that they donFt need to kee, re(ere( L 100 de,o(it(

)n&y a (*a&& fra%tion of de,o(it( are 4ithdra4n on any $ien day#rofit o,,ort'nity kee, O'(t eno'$h re(ere( on hand to (ati(fy 4ithdra4a&( &oan o't the re(t ; %har$e intere(t *ake *oney fro* intere(t rate differentia&

Hra%tiona&-re(ere ankin$ (y(te*

ankin$ (y(te* in 4hi%h ank re(ere( are &e(( than de,o(it( (othat the re(ere-de,o(it ratio i( &e(( than 100Re(ere-de,o(it ratio L Bank re(ere( diided y de,o(it(

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U i 2 3 M d h B k f C d

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2013-I-30 r. !.M. Bennett" #.En$." #M# ENGR 3360U En$ E%o2.3-1D

he Bank of Canada

),ened in 1D3 - re(,on(i&e for ad*ini(tration of

*onetary ,o&i%y

Monetary ,o&i%y de%i(ion( ty,i%a&&y ino&e %han$e( to

intere(t rate(the key ,o&i%y rate i( anno'n%ed on @ ,re-(,e%ified

date( ea%h year

8in%e 1D@@ - (o&e oOe%tie of Bank of Canada ha( een

kee,in$ inf&ation 5&o4 and (ta&etar$et ran$e for 5Core inf&ation in C#I i( 1 - 3

)n aera$e" C#I inf&ation L 1.: et4een 1DD2 ;

200

U i 2 3 M d h B k f C d

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Inf&ation #erfor*an%e in Canada

8o'r%e/ http://www.bank-banque-canada.ca/en/indinf/cpi_graph_en.htm

U it 2 3 M d th B k f C d

http://www.bank-banque-canada.ca/en/indinf/cpi_graph_en.htmlhttp://www.bank-banque-canada.ca/en/indinf/cpi_graph_en.html

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era$e fro* 2000 i( 2.2Con('*er #ri%e Inde7" hi(tori%a& ('**ary

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he Bank of Canada

)ther f'n%tion( of the Bank of Canada

#roidin$ %entra& ankin$ (eri%e(

I(('in$ ank note(

d*ini(terin$ the federa& det

Me*er( of the $oernin$ %o'n%i& and oard of dire%tor( are

a,,ointed

Hedera& $oern*ent na*e( Goernor for : year ter*

a$ree( then on oOe%tie( – i.e. tar$et ran$e for inf&ation

Bank of Canada ha( inde,enden%e in *eetin$ tho(e

oOe%tie(

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U it 2 3 M d th B k f C d

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More #re%i(e C#I efinition(

2013-I-30 r. !.M. Bennett" #.En$." #M# ENGR 3360U En$ E%o2.3-2+

Core C#I/ he C#I e7%&'din$ ei$ht of the *o(t o&ati&e

%o*,onent(

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ri%kery

2013 I 30 r ! M Bennett # En$ #M# ENGR 3360U En$ E%o2 3 2

Month

!ota "P#CoreC#I 1

Percentage change o$er % &ear ago'unad(usted)

ota&

C#I

Core

C#I 1

&ternatie*ea('re( of trendinf&ation

3360 unit 02.3 2013-i-31

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