716 Glossary demand-pull inflation Inflation that results when policymakers pursue policies that shift the aggregate demand curve 673 demand shocks Shocks that can shift the aggregate demand curve, including changes in the money supply, changes in government expenditure and taxes, changes in net exports, and changes in consumer and business spending 622 demutualization The process of converting a life insurance company into a stock company 289 deposit outflows Losses of deposits when depositors make withdrawals or demand payment 321 deposit rate ceiling Restriction on the maximum interest rate payable on deposits 264 depreciation Decrease in a currency s value 11, 495 desired reserve ratio The fraction of deposits that banks desire to keep as reserves 317 desired reserves Reserves that are held to meet the banks desire that for every dollar of deposits, a certain fraction should be kept as reserves 317 devaluation Resetting of the fixed value of a currency at a lower level 527 direct clearers Members of the Canadian Payments Association who participate directly in the Automated Clearing Settlement System (ACSS) and maintain a settlement account at the Bank of Canada 433 dirty float See managed float regime discount bond A credit market instrument that is bought at a price below its face value and whose face value is repaid at the maturity date; it does not make any interest payments Also called a zerocoupon bond 62 discretionary policy Policy to eliminate high unemployment whenever it appears on a discretionary basis 684 disintermediation A reduction in the flow of funds into the banking system that causes the amount of financial intermediation to decline 264 disposable income Total income available for spending, equal to aggregate income minus taxes 574 diversification Investing in a collection of assets whose returns not always move together, with the result that overall risk is lower than for individual assets 32 dividends Periodic payments made by equities to shareholders 20, 141 dollarization The adoption of a sound currency, like the U.S dollar, as a country s money 544 dual banking system The system in the United States in which banks supervised by the federal government and banks supervised by the states operate side by side 254 duration analysis A measurement of the sensitivity of the market value of a bank s assets and liabilities to changes in interest rates 336 e-cash A form of electronic money that can be used on the Internet to purchase goods or services 49 econometric model A model whose equations are estimated using statistical procedures 692 economies of scale The reduction in transaction costs per dollar of transaction as the size (scale) of transactions increases 31 economies of scope The ability to use one resource to provide many different products and services 187 e-finance A new means of delivering financial services electronically efficient market hypothesis The application of the theory of rational expectations to financial markets 150 electoral business cycles Persistent cyclical patterns of key policy and target variables across electoral terms 400 electronic money (e-money) Money that is stored electronically 49 endowment insurance See permanent life insurance equation of exchange The equation MV * PY, which relates nominal income to the quantity of money 552 equities Claims to share in the net income and assets of a corporation (such as common stock) 20 equity capital See net worth equity multiplier (EM) The amount of assets per dollar of equity capital 327 error-learning hypothesis The expectations formation hypothesis that emphasizes the learning behaviour of economic agents It postulates that expectations are corrected by some fraction of the past period s expectations error 148 Eurobonds Bonds denominated in a currency other than that of the country in which they are sold 27 Eurocurrencies A variant of the Eurobond, which are foreign currencies deposited in banks outside the home country 27 Eurodollars U.S dollars that are deposited in foreign banks outside the United States or in foreign branches of U.S banks 27 European option An option that can be exercised only at the expiration date of the contract 362 European System of Central Banks (ESCB) Refers to the European Central Bank and the national central banks of all European Union (EU) member countries; when all EU member countries adopt the euro, the Eurosystem and the European System of Central Banks will become one entity 394 Eurosystem Refers to the European Central Bank and the national central banks of the countries that have adopted the euro 395 excess demand A situation in which quantity demanded is greater than quantity supplied 87