Finance English practice: Unit 27 — Money Supply and Control

Biz English

Apr 18, 2016

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Complete the sentences below. Use the key words if necessary.
- Measuring money
  
  key words
  money supply      ○      in circulation      ○      time deposits      ○      narrow money      ○      sight deposits      ○      broad money      ○      velocity of circulation
  
  Professor John Webb, the banking expert we met in Unit 23, continues his interview.
  
  ‘What is the ?’
  
  ‘It’s the stock of money and supply of new money. The currency — coins and notes that people spend — makes up only a very small part of the money supply. The rest consists of bank deposits.’
  
  ‘Are there different ways of measuring it?’
  
  ‘Yes. It depends on whether you include — bank deposits that can only be withdrawn after a certain period of time. The smallest measure is called . This only includes currency and — bank deposits that customers can withdraw whenever they like. The other measures are of . This includes savings deposits and time deposits, as well as money market funds, certificates of deposit, commercial paper, repurchase agreements, and things like that.’
  
  ‘What about spending?’
  
  ‘To measure money you also have to know how often it is spent in a given period. This is money’s — how quickly it moves from one institution or bank account to another. In other words, the quantity of money spent is the money supply times its velocity of circulation.’
  
  Changing the money supply
  
  key words
  monetary authorities      ○      monetary policy      ○      discount rate      ○      reserve-asset ratio
  
  The — sometimes the government, but usually the central bank — use to try to control the amount of money in circulation, and its growth. This is in order to prevent inflation — the continuous increase in prices, which reduces the amount of things that people can buy.
  • They can change the at which the central bank lends short-term funds to commercial banks. The lower interest rates are, the more money people and businesses borrow, which increases the money supply.
  • They can change commercial banks’ . This sets the percentage of deposits a bank has to keep in its reserves (for depositors who wish to withdraw their money), which is generally around 8%. The more a bank has to keep, the less it can lend.
  • The central bank can also buy or sell treasury bills in open-market operations with commercial banks. If the banks buy these bonds, they have less money (and so can lend less), and if the central bank buys them back, the commercial banks have more money to lend.
  
  Monetarism
  
  key words
  Monetarist economists      ○      inflation      ○      monetary growth
  
  are those who argue that if you control the money supply, you can control . They believe the average levels of prices and wages depend on the quantity of money in circulation and its velocity of circulation. They think that inflation is caused by too much : too much new money being added to the money stock. Other economists disagree. They say the money supply can grow because of increased economic activity: more goods being sold and more services being performed.
Are following statements true or false?
- Most money exists on paper, in bank accounts, rather than in notes and coins. clue
  — Currency in circulation makes up only a very small part of the money supply. The rest consists of bank deposits.
  - true
  - false
- Banking customers can withdraw time deposits whenever they like. clue
  — Time deposits are bank deposits that can only be withdrawn after a certain period of time.
  - true
  - false
- The amount of money spent is the money supply multiplied by its velocity of circulation. clue
  — To measure money you also have to know how often it is spent in a given period; the quantity of money spent is the money supply times its velocity of circulation.
  - true
  - false
- Central banks can try to control the money supply. clue
  — The central bank uses monetary policy to try to control the amount of money in circulation, and its growth.
  - true
  - false
- Commercial banks can choose which percentage of their deposits they keep in their reserves. clue
  — The monetary authorities can change commercial banks’ reserve-asset ratio – the percentage of deposits a bank has to keep in its reserves.
  - false
  - true
Complete the sentences.
- The . . .
  money supply
  is the existing stock of money plus newly created money.
  - money supply
  - broad money
  - narrow money
- The smallest or most restrictive measure is . . .
  narrow money
  .
  - money supply
  - broad money
  - narrow money
- . . .
  Broad money
  is a measure of money that includes savings deposits.
  - Broad money
  - Narrow money
  - Money supply
- The . . .
  monetary authorities
  are the official agencies that can try to control the quantity of money.
  - monetary growth
  - monetary authorities
  - monetary policy
- The attempt to control the amount of money in circulation and the rate of inflation is called . . .
  monetary policy
  .
  - monetary authorities
  - monetary policy
  - monetary growth
- Monetarism is the theory that the level of prices is determined by . . .
  monetary growth
  .
  - monetary policy
  - monetary growth
  - monetary authorities

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