Money and Banking


Defn of Money:
Anything commonly expected as a means of exchange.

What is counted?

The price of money is measured in terms of the amount of interest (in percentage points) you would have to pay if you borrowed it.

The opportunity cost of holding cash is what you give up by not gaining interest.

Interest rates are set by the Bank of Canada via its control over the money supply (Ms). When the money supply (Ms) increases, interest rates fall.

Fractional Reserve Requirement (FRR)

Aka Cash Reserve Ratio. This is the fraction of total deposits that banks must hold in reserve, either in vaults ot at the Bank of Canada.