Exam 11: Monetary Policy

From an initial long-run macroeconomic equilibrium, if the Bank of Canada anticipated that next year aggregate demand would grow significantly faster than long-run aggregate supply, then the Bank of Canada would most likely

The Bank of Canada, the Department of Finance, and the Office of the Superintendent of Financial Institutions are all alarmed by the high household debt to after-tax income ratio of Canadians and the overheated housing marked caused by

Based on the information below and the Taylor Rule, what is the appropriate target for the overnight rate? Current inflation = 9% Equilibrium real interest rate = 0% Inflation target = 2% Output Gap = 1% Unemployment rate = 10.3%

An argument in favour of using inflation targeting, as the Bank of Canada does, is that in the long run, it can have an impact on inflation but not on real GDP.

An increase in the interest rate should ________ the demand for dollars and the value of the dollar, and net exports should ________.

The best definition for a bubble in a stock market is?

Figure 11.3 Alt text for Figure 11.3: In figure 11.3, a graph shows shift in money supply. Long description for Figure 11.3: 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 2 and 3% marked.3 lines are shown; MS1, MS2, and MD.Line MD begins in the top left corner and slopes down to the end of the x-axis.Line Money, supply MS1, is perpendicular to the x-axis, and begins from the value $90.Line MS2 is perpendicular to the x-axis, and begins from the value 95, to the right of line MS1.Line MD meets line MS1 at point ($90, 3%), approximately 3 quarters of the way along both lines.Line MD meets line MS2 at point (95, 2), almost half way along both lines.These points of intersection are connected to their respective coordinates on the y-axis using dotted lines. -Refer to Figure 11.3.In the figure above, when the money supply shifts from MS₁ to MS₂, at the interest rate of 3 percent households and firms will

Expansionary monetary policy refers to the Bank of Canada's increasing the money supply and increasing interest rates to increase real GDP.

One of the monetary policy goals of the Bank of Canada is price stability.

Over the last approximately 20 years, the consumer price index (CPI)and the core CPI have

The argument advanced by economist Milton Friedman for adopting a monetary growth rule is that

If the Bank of Canada raises the overnight interest rate, this will ________ inflation and ________ real GDP in the short run.

Lowering the interest rate will

The main goal of monetary policy for the Bank of Canada recently has been to maintain high employment in labour markets.

Food and energy prices are omitted from the core CPI because

An increase in the domestic interest rate relative to other interest rates should

The Bank of Canada does not regulate financial institutions, but it does act as the "lender of last resort" by lending to commercial banks when they are temporarily short of funds.The goal of the Bank of Canada filling this role is to

Suppose the equilibrium real overnight interest rate is 2 percent, the target rate of inflation is 2 percent, the current inflation rate is 4 percent, and real GDP is 2 percent above potential real GDP.If the weights for the inflation gap and the output gap are both 1/2, then according to the Taylor rule the overnight interest target rate equals

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

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 Bank of Canada lowers its target for the overnight interest rate.Using the static AD-AS model in the figure above, this situation would be depicted as a movement from