The Money Supply Process

These flashcards cover key terms and concepts related to the money supply process as discussed in the lecture.

Money Supply

The total amount of money available in an economy at a particular point in time, expressed as M = C + D, where C is currency and D is chequable deposits.

Deposits

Funds placed into a banking account; they are a major component of the money supply, particularly chequable deposits.

Loans Create Deposits

The concept that banks create deposits when they issue loans, rather than loans being created from existing deposits.

Settlement Balances

The reserves that banks hold at the central bank; the only entity that can create new settlement balances is the Bank of Canada.

Bank of Canada (BoC)

The central bank of Canada responsible for creating settlement balances and regulating the country’s monetary policy.

Interbank Lending

The process by which banks lend reserves to other banks, often occurring on a short-term basis to manage liquidity.

Liquidity Needs

The demand for cash or cash-equivalent assets that banks must meet to fulfill customer requests and settle payments.

Creditworthy

A classification of a borrower that assesses their likelihood to repay loans, determining whether a bank will approve a loan.

Chequable Deposit

A type of bank deposit that can be accessed via cheques or electronic transfers, making it easily transferable.

Private Commercial Banks

Banks that are privately owned and operate for profit, playing a key role in creating money through loans.