Chapter 3

What Is Money?

© 2005 Pearson Education Canada Inc.

Meaning and Function of Money
Economist’s Meaning of Money
1. Anything that is generally accepted in payment for goods and services
2. Not the same as wealth or income
Functions of Money
1. Medium of exchange
2. Unit of account
3. Store of value
Evolution of Payments System
1. Precious metals like gold and silver
2. Paper currency (fiat money)
3. Checks
4. Electronic means of payment
5. Electronic money: Debit cards, Stored-value cards, Smart cards, E-cash

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Bank of Canada’s Monetary Aggregates

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Growth Rates of the Bank’s
Monetary Aggregates

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 Money as a Weighted Aggregate

• The Bank of Canada’s money supply measures are

‘simple-sum’ indices,
M = x1 + x2 + … + xn ,

where xj is one of the n monetary components of the

monetary aggregate M

• Weighted monetary aggregates (such as the ‘Divisia’)

seem to predict inflation and the business cycle
somewhat better than the Bank’s aggregates
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