Key Concepts in Canadian Money, Banking, and Monetary Policy

What are the three functions of money?

Medium of exchange, measure of value, and store of value.

What is the barter system?

A system of exchange in which goods or services are traded directly for other goods or services.

What is money?

Anything a society uses to purchase products or resources.

What are the three main components of Canada's money supply?

Currency, demand deposits, and time deposits.

What is deflation?

A decrease of prices in an economy over time, often caused by a shrinking money supply.

What is inflation?

An increase of prices in an economy over time, typically caused by a rise in money supply.

What is hyperinflation?

A rapid increase in inflation that can lead to a lower quality of life for consumers.

What role does the Bank of Canada play?

It is the sole issuer of bank notes in Canada and manages the country's financial system.

What are open market operations?

The purchase or sale of Canadian government securities by the Bank of Canada to stimulate or slow down the economy.

What is the overnight rate?

The interest rate that major financial institutions borrow from each other overnight.

What is financial intermediation?

When financial institutions act as intermediaries between lenders and borrowers of funds.

What is the Canada Deposit Insurance Corporation (CDIC)?

An organization that provides deposit insurance and contributes to the stability of Canada's financial system.

What does CDIC insure?

Eligible deposits at member institutions and reimburses depositors when a member institution fails.

What are the four primary types of financial institutions?

Commercial banks, credit unions, trust companies, and non-bank financial institutions.

How has technology improved banking?

By increasing competition, providing convenient deposit options, and enabling real-time monitoring of funds.

What is the importance of a steadily growing money supply?

It is healthy for an economy, while a shrinking money supply can lead to deflation.

What is the role of the Office of the Superintendent of Financial Institutions (OSFI)?

It regulates federally registered banks, insurers, and other financial institutions in Canada.

How does the Bank of Canada control inflation?

By changing the money supply through monetary policy tools like open-market operations.

What is the impact of increased money supply on taxpayers?

It can lead to inflation, affecting purchasing power and economic stability.

What are demand deposits?

Money stored in bank accounts that depositors can withdraw on demand.

What are time deposits?

Money invested for a specific time period.

What is an alternate currency?

Currencies like Bitcoin and Ether that are not traditional fiat currencies.

What is blockchain technology?

A method of storing information that is difficult to change, hack, or cheat.

What are the advantages of having CDIC-insured deposits?

They provide security and confidence in the stability of the financial system.

What is the relationship between money supply and economic growth?

Changes in money supply can directly affect economic growth and inflation rates.