ECO102H1 Lecture Notes - Reserve Requirement, Excess Reserves, Money Creation
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ECO102H1 Full Course Notes
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Document Summary
Bank of canada lowers the key interest rate from 1% to 0. 5% because: the outlook for the global economy has continued to deteriorate the nature of the us recession is particularly challenging for canada. Why lower interest rate: try to increase ad, stimulate borrowing, How the interest rate impacts the ad - and the equilibrium. Fiscal policy: government expenditure and taxes, positive shock for the economy. Monetary policy: interest rate & the money supply. Optimal borrowing and lending: print more money. Commercial banks: take deposits from savers and loan it to spenders, create money as a by-product of profit seeking activities. Money supply is doubled when cash is transferred between two parties. Central bank (the bank of canada: a bank for commercial banks & the federal government, controls the interest rate and the money supply (to influence ad, can print of burn cash, regulatory agency.
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