Exam 11: Monetary Policy

For purposes of monetary policy, the Bank of Canada has targeted the interest rate known as the

The Bank of Canada seeks to promote stability of financial markets because

With a monetary growth rule as proposed by the monetarists, during a recession the rate of growth of the money supply would

In recent years, a monetary growth rule has fallen out of favour because

Canada's banking regulator, the Office of the Superintendent of Financial Institutions (OSFI), has been more conservative than banking regulators in other countries, which is attributed to the lower leverage of Canadian banks and is one reason why Canada did not have a housing bubble and banking crisis in 2008.

A financial asset is considered ________ if it can be sold in a secondary market.

The Bank of Canada uses a "core" price index, one that excludes food and energy prices, to measure inflation.It does so because

The interest rate that banks charge other banks for overnight loans is the

If the Bank of Canada pursues expansionary monetary policy,

Figure 11.9 Alt text for Figure 11.9: In figure 11.9, a static AD-AS model. Long description for Figure 11.9: The x-axis is labelled, real GDP (trillions of 2007 dollars)and the y-axis is labelled, price level (CPI).5 lines are shown; AD1, AD2, AD3, LRAS, SRAS.Line AD1 begins in the top left corner and slopes down to the end of the x-axis.Line AD2 follows the same slope but is plotted to the left.Similarly, line AD3 is plotted to the left of line AD2.Line SRAS begins close to the vertex and slopes up to the top right corner.Line LRAS is perpendicular to the x-axis, and passes through points D, B, and E.Lines AD3 and SRAS intersect at point A.Lines AD2, LRAS, and SRAS intersect at point B.Lines AD1 and SRAS intersect at point C.Lines AD1 and LRAS intersect at point D.Lines AD3 and LRAS intersect at point E. -Refer to Figure 11.9.Suppose the economy is in a recession and the Bank of Canada pursues an expansionary monetary policy.Using the static AD-AS model in the figure above, this would be depicted as a movement from

Using the money demand and money supply model, an open market sale of government of Canada securities by the Bank of Canada would cause the equilibrium interest rate to

Figure 11.13 Alt text for Figure 11.13: In figure 11.13, a dynamic model of AD-AS. Long description for Figure 11.13: The x-axis is labelled, real GDP (trillions of 2007 dollars), with values $1.4, 1.5, 1.6 marked.The y-axis is labelled, price level (CPI), with values 100 and 102 marked.6 lines are shown; SRAS1, SRAS2, AD1, AD2, LRAS1, LRAS2.Line SRAS1 begins in the bottom left and slopes up to the top right corner.Line SRAS2 follows the same slope as line SRAS1, but is plotted to the right.Line AD1 begins at the top left corner and slopes down to the end of the x-axis.Line AD2 follows the same slope as AD1, but is plotted to the right.Line LRAS1 is perpendicular to the x-axis, and begins from the x-axis value $1.4.Line LRAS2 is perpendicular to the x-axis, and begins from the value 1.6.Line LRAS1 intersects line AD1 and SRAS1 at point A ($1.4, 100).Lines AD2 and SRAS2 intersect at point B (1.5, 102).Points A and B are connected to their respective coordinates on the x-axis and y-axis with dotted lines.Line LRAS2 intersects lines SRAS1 and SRAS2 on the right end of these lines.Similarly, line LRAS2 intersects lines AD1 and AD2 toward the right end of these lines. -Refer to Figure 11.13.In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, and the Bank of Canada pursues no policy, then at point B

To measure inflation, the Bank of Canada has targets for

The Bank of Canada is able to use monetary policy to keep real GDP exactly at its potential level.

Describe how the Bank of Canada uses open market operations to change short-term and long-term interest rates.

Which of the following describes what the Bank of Canada would do to pursue an expansionary monetary policy?

The Bank of Canada can use expansionary monetary policy to lower interest rates to stimulate aggregate demand.

Figure 11.9 Alt text for Figure 11.9: In figure 11.9, a static AD-AS model. Long description for Figure 11.9: The x-axis is labelled, real GDP (trillions of 2007 dollars)and the y-axis is labelled, price level (CPI).5 lines are shown; AD1, AD2, AD3, LRAS, SRAS.Line AD1 begins in the top left corner and slopes down to the end of the x-axis.Line AD2 follows the same slope but is plotted to the left.Similarly, line AD3 is plotted to the left of line AD2.Line SRAS begins close to the vertex and slopes up to the top right corner.Line LRAS is perpendicular to the x-axis, and passes through points D, B, and E.Lines AD3 and SRAS intersect at point A.Lines AD2, LRAS, and SRAS intersect at point B.Lines AD1 and SRAS intersect at point C.Lines AD1 and LRAS intersect at point D.Lines AD3 and LRAS intersect at point E. -Refer to Figure 11.9.Suppose the economy is in short-run equilibrium above potential GDP, the unemployment rate is very low, and wages and prices are rising.Using the static AD-AS model in the figure above, the correct Bank of Canada policy for this situation would be depicted as a movement from

The money demand curve has a

The lag in calculating GDP and determining GDP can cause the Bank of Canada to engage in