EconomicsCode 9708
Money and banking
What this topic asks you to be able to do
- the definition of money, its functions and its characteristics
- definition of money supply
- the quantity theory of money, expressed as MV = PT
- the roles performed by commercial banks: offering deposit accounts (a demand deposit account or a savings account); lending through overdrafts and loans; keeping or supplying cash, securities, loans, deposits and equity; the reserve ratio and the capital ratio; the aims of commercial banks, namely liquidity, security and profitability
- in an open economy, the reasons the money supply can shift: commercial banks acting as sources of credit creation, together with the bank credit multiplier; the part a central bank plays; government deficit financing; quantitative easing; alterations in the balance of payments
- policies that aim to bring inflation down, and how well they work
- the demand for money, as set out in liquidity preference theory
- how interest rates are set, according to loanable funds theory and Keynesian theory