Exam 11: Monetary Policy

Although the U.S.Federal Reserve had traditionally made discount loans only to commercial banks, in response to the financial crisis in 2008 the Fed made ________ eligible for discount loans as well.

Why would businesses watch the bank of Canada for signs of changing interest rates?

Ceteris paribus, an increase in the money supply will lower short-term interest rates.

In which of the following situations would the Bank of Canada conduct contractionary monetary policy?

Figure 11.2 Alt text for Figure 11.2: In figure 11.2, a graph shows shift in money supply. Long description for Figure 11.2: The x-axis is labelled, quantity of money, M (billions of dollars), with values $90 and 95 marked.The y-axis is labelled, interest rate, i, with values 3 and 4% marked.3 lines are shown; MS1, MS2, and MD.Line MD begins at the top left corner and slopes down toward the end of the x-axis.Line Money supply MS1 is perpendicular to the x-axis, from point 95.Line MS2 is perpendicular to the x-axis, and begins from the value $90, to the left of line MS1.Line MD meets line MS1 at point (95, 3), half way along both lines.Line MD meets line MS2 at point ($90, 4%), approximately 3 quarters of the way along both lines.These points of intersection are connected to their respective coordinates on the y-axis using dotted lines. -Refer to Figure 11.2.In the figure above, when the money supply shifts from MS₁ to MS₂, at the interest rate of 3 percent households and firms will

Table 11.4 -Refer to Table 11.4.Consider the hypothetical information in the table above for potential real GDP, real GDP and the price level in 2017 and in 2018 if the Bank of Canada does not use monetary policy.If the Bank of Canada wants to keep real GDP at its potential level in 2018, it should

When the Bank of Canada Act was passed in 1934, it was stated that the main responsibility is to conduct monetary policy to

Inflation rates during the years 1979-1981 were the highest Canada has ever experienced post-1950.

When the Bank of Canada increases the money supply, at the previous equilibrium interest rate households and firms will now have

Firms that participate in regular open market transactions with the US Federal Reserve are called

By the 2000s, an important change in the U.S.mortgage market had occurred when ________ became significant participants in the secondary market for mortgages.

Table 11.2 -Refer to Table 11.2.The hypothetical information in the table shows what the values for real GDP and the price level will be in 2011 if the Bank of Canada does not use monetary policy: a.If the Bank of Canada wants to keep real GDP at its potential level in 2011, should it use an expansionary policy or a contractionary policy? Should the trading desk buy c bonds or sell them? b.Suppose the Bank of Canada's policy is successful in keeping real GDP at its potential level in 2011.State whether each of the following will be higher or lower than if the Bank of Canada had taken no action: (i)Real GDP (ii)Full-employment real GDP (iii)The inflation rate (iv)The unemployment rate c.Draw an aggregate demand and aggregate supply graph to illustrate your answer.Be sure that your graph contains LRAS curves for 2010 and 2011; SRAS curves 2010 and 2011; AD curve for 2010 and 2011, with and without monetary policy actions; and equilibrium real GDP and the price level in 2011 with and without policy.

Which of the following is a reason that Canada did not see a housing bubble and banking crisis in 2008?

Firms that participate in regular open market transactions with ________ are called primary dealers.

The overnight interest rate is

Inflation targeting refers to conducting ________ policy so as to commit the central bank to achieving a ________.

Monetary policy is conducted by the federal Department of Finance.

Use a graph to show the effects of an expansionary monetary policy moving an economy out of recession and to potential real GDP.Explain what happens to aggregate demand, real GDP, and the price level.

The Bank of Canada adheres to the ideas expressed by ________.If the economy moves into a recession, the Bank of Canada would recommend that the overnight lending rate decrease as long as the inflation rate did not rise above the publicly announced goal for inflation.

Use the dynamic aggregate demand and aggregate supply model and start with Year 1 in long-run macroeconomic equilibrium.For Year 2, graph aggregate demand, long-run aggregate supply, and short-run aggregate supply such that the condition of the economy will induce the Bank of Canada to conduct an expansionary monetary policy.Briefly explain the condition of the economy and what the Bank of Canada is attempting to do.