ECON 295 Chapter Notes - Chapter 29: Monetary Policy, Open Market Operation, Overnight Rate

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amberbee624

17 Apr 2017

School

McGill University

Department

Economics

Course

ECON 295

Professor

Mayssun El- Attar Vilalta

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Document Summary

Macroeconomics policy chapter 29: monetary policy in canada. 29. 1 how the bank of canada implements monetary policy. Monetary policy can be implemented either by targeting the money supply directly or by targeting the interest rate directly but not both. If central bank targets the money supply, the ms curve shifts right while the interest rate goes down. If central bank targets the interest rate, the interest rate goes down, the quantity of money shifts down along the md curve. The bank of canada could attempt to shift the ms curve directly. Changing the amount of currency in circulation. Buying or selling government securities in the financial markets. The bank of canada chooses to implement its monetary policy by targeting interest rates (rather than the money supply) because. The bank can influence an interest rate more easily than it can affect the money supply (cannot control the process of deposit creating) Easier to communicate its policy through changes in interest rates.

Related Questions

1. The Federal Funds Rate is set by the Federal Reserve on the first business day of each month by faxing the rate to the member banks of each Federal Reserve District.

A. True

B. False

2. The Federal Reserve is a single Central bank located on Wall Street in New York City.

A. True

B. False

3. Which of the following is NOT true about the Federal Reserve System?

A. Terms of service of the members of the Board of Governors are longer than the number of years that a two-term President of the United States would serve.

B. The Federal Reserve System is the nation's central bank and is comprised of 12 Federal Reserve Banks that serve as bankers' banks.

C. Some of the main functions of the Federal Reserve System include the authority to control the money supply, to issue currency, to set reserve requirements, and to hold reserves.

D. While Congress controls the actions of the Federal Reserve, the President has the authority to appoint and remove private banks from the Federal Reserve System.

4. Which of the following is NOT true about restrictive monetary policy?

A. A restrictive monetary policy seeks to raise the federal funds rate.

B. A restrictive monetary policy seeks to expand the money supply.

C. A restrictive monetary policy seeks to raise the Federal Funds Rate by selling government bonds or raising the reserve requirement ratio or increasing the discount rate.

D. A restrictive monetary policy is used when the government is concerned about suddenly increasing inflation.

5. Which of the following statements is NOT true about contractionary fiscal policy?

A. Contractionary fiscal policy consists of reductions in government spending or increases in taxes.

B. Contractionary fiscal policy can include both reductions in government spending or increases in taxes.

C. Contractionary fiscal policy seeks to shift the Aggregate Demand curve to the right.

D. Contractionary fiscal policy is used when the government seeks to reduce suddenly surging inflation.

6. The Federal Reserve creates money by printing the amount of desired new money and distributing it via armored trucks and high-security railways to Federal Reserve District Banks.

A. True

B. False

7. If the Fed feared a looming recession was just around the corner, which of the following actions would it "NOT" consider?

A. The Fed would raise the discount rate.

B. In order to influence prevailing commercial interest rates to fall, the Fed would buy large amounts of government securities.

C. In order to expand the money supply (which influences prevailing commercial interest rates to fall), the Fed would either buy large volumes of government bonds, lower the reserve requirement or cut the discount rate.

D. The Fed would seek to expand the money supply because, in so doing, the federal funds rate would fall and that would stimulate commercial interest rates to fall.

8. Which of the following statements is NOT true about the ability of the Federal Reserve System to expand the money supply?

A. The Federal Reserve System uses the fractional nature of the banking system to create money in order to expand the money supply.

B. The money multiplier defines the relationship between new excess reserves throughout the banking system and the creation of money by banks in the system. It is calculated by dividing the number 1 by the Required Reserve Ratio. [1/rr].

C. If the required reserve ratio is 20%, then $80 billion in new excess reserves will create $400 billion in bank system lending throughout the entire banking system.

D. If the reserve requirement is 100%, then the banks can generate 100% in new excess reserves.

9. Which of the following is NOT true about the tools of monetary policy?

A. The Fed can alter the money supply through open market operations, changes in the reserve ratio or adjustments to the discount rate.

B. Lowering the reserve ratio would expand the money supply.

C. Raising the discount rate would restrict the money supply.

D. Adjusting the reserve requirement is the most important day-to-day method for controlling the nation's money supply.

10. If the Federal Reserve wishes to hold off a feared recession, it will sell large volumes of government bonds.

A. True

B. False

harlequincicada312

1. Is opportunity cost always present?

2. What is the problem at the heart of economics?

3. What is included in GDP and what is excluded?

4. If the consumer price index increases, how does this impact the average citizen?

5. What is the business cycle?

6. What is the relationship among the potential output level of the economy, the natural rate of unemployment, cyclical unemployment, structural unemployment, and frictional unemployment?

7. What did Keynesians believe about investment and the adjustment of wage rates?

8. What did pre-Keynesian believe about the market and its ability to pull itself out of a recession?

9. What role do investments in human capital, physical capital, technology development, and improving institutional quality play in creating economic growth?

10. How does a fractional reserve banking system work and what is the relationship between the money multiplier and the reserve requirement?

Wh What is fiscal policy?

12. What are the relations between government spending, the marginal propensity to consume, the marginal propensity to save, and the multiplier effect?

13. What are some of the problems with using fiscal policy in an effective manner?

14. What role did the Great Depression play in changing the government%u2019s approach to the economy?

15. What is stagflation and how did it challenge Keynesian orthodoxy?

16. What is supply side economics and how does it function?

17. What is the crowding out effect?

18. What is the new classical approach to the stimulatory impact of fiscal policy implemented through deficit spending?

19. What role does the department of the Treasury play in the American economy?

20. What role does the Federal Reserve Banking system play in managing the American policy?

21. What are the tools that the Fed uses to influence the money supply?

22. What approach to the money supply do those embracing monetarism suggest?

23. What dangers does monetary policy pose for the economy?

24. How do shifting price levels impact debtors and savers?

25. Can you use aggregate demand/ aggregate supply analysis to understand and explain the impact of a tax cut?

26. Can you use aggregate demand/ aggregate supply analysis to understand and explain the impact of a tax increase?

27. Can you use aggregate demand/aggregate supply analysis to understand and explain the impact of an increase in government spending?

28. Can you use aggregate demand/aggregate supply analysis to understand and explain the impact of a cut in government spending?

29. Can you use aggregate demand/aggregate supply analysis to understand and explain the impact of an expansionary monetary policy?

30. Can you use aggregate demand/ aggregate supply analysis to understand and explain the impact of a restrictive monetary policy?

31. How do automatic stabilizers influence the economy?

32. How does a deficit and large debt influence the economy?

33. What is the relationship between the expansion of the money supply and inflation?

34. What is the relationship between interest rates and inflation rates?

35. How do expectations impact the effectiveness of monetary policy?

36. What restricts the ability of the Fed to purchase U.S. securities?

37. What is Money?

38. What is the primary motivation of bankers and banks?

39. What is the impact of higher interest rates on the value of a currency and a nation%u2019s net exports?

40. What is the Conference Board and what does it do?

41. Why do countries willing lend the U.S. government money despite the relatively large debt to GDP ratio of the United States?

42. How does trade contribute to growth?

43. How do institutions contribute to growth?

44. How does the relative size of government contribute to growth?

45. What is the Philips Curve?

46. How does the rule of 70 work?

47. Do High Income countries always grow at a faster pace than lesser developed countries?

48. How do high levels of inflation effect growth?

49. Can you identify the amount of growth in an economy by using the percentage change formula?

50. What countries are presently experiencing high rates of economic growth?

12.

jadeserval808

1. Is opportunity cost always present?

2. What is the problem at the heart of economics?

3. What is included in GDP and what is excluded?

4. If the consumer price index increases, how does this impact the average citizen?

5. What is the business cycle?

6. What is the relationship among the potential output level of the economy, the natural rate of unemployment, cyclical unemployment, structural unemployment, and frictional unemployment?

7. What did Keynesians believe about investment and the adjustment of wage rates?

8. What did pre-Keynesian believe about the market and its ability to pull itself out of a recession?

9. What role do investments in human capital, physical capital, technology development, and improving institutional quality play in creating economic growth?

10. How does a fractional reserve banking system work and what is the relationship between the money multiplier and the reserve requirement?

Wh What is fiscal policy?

12. What are the relations between government spending, the marginal propensity to consume, the marginal propensity to save, and the multiplier effect?

13. What are some of the problems with using fiscal policy in an effective manner?

14. What role did the Great Depression play in changing the government%u2019s approach to the economy?

15. What is stagflation and how did it challenge Keynesian orthodoxy?

16. What is supply side economics and how does it function?

17. What is the crowding out effect?

18. What is the new classical approach to the stimulatory impact of fiscal policy implemented through deficit spending?

19. What role does the department of the Treasury play in the American economy?

20. What role does the Federal Reserve Banking system play in managing the American policy?

21. What are the tools that the Fed uses to influence the money supply?

22. What approach to the money supply do those embracing monetarism suggest?

23. What dangers does monetary policy pose for the economy?

24. How do shifting price levels impact debtors and savers?

25. Can you use aggregate demand/ aggregate supply analysis to understand and explain the impact of a tax cut?

26. Can you use aggregate demand/ aggregate supply analysis to understand and explain the impact of a tax increase?

27. Can you use aggregate demand/aggregate supply analysis to understand and explain the impact of an increase in government spending?

28. Can you use aggregate demand/aggregate supply analysis to understand and explain the impact of a cut in government spending?

29. Can you use aggregate demand/aggregate supply analysis to understand and explain the impact of an expansionary monetary policy?

30. Can you use aggregate demand/ aggregate supply analysis to understand and explain the impact of a restrictive monetary policy?

31. How do automatic stabilizers influence the economy?

32. How does a deficit and large debt influence the economy?

33. What is the relationship between the expansion of the money supply and inflation?

34. What is the relationship between interest rates and inflation rates?

35. How do expectations impact the effectiveness of monetary policy?

36. What restricts the ability of the Fed to purchase U.S. securities?

37. What is Money?

38. What is the primary motivation of bankers and banks?

39. What is the impact of higher interest rates on the value of a currency and a nation%u2019s net exports?

40. What is the Conference Board and what does it do?

41. Why do countries willing lend the U.S. government money despite the relatively large debt to GDP ratio of the United States?

42. How does trade contribute to growth?

43. How do institutions contribute to growth?

44. How does the relative size of government contribute to growth?

45. What is the Philips Curve?

46. How does the rule of 70 work?

47. Do High Income countries always grow at a faster pace than lesser developed countries?

48. How do high levels of inflation effect growth?

49. Can you identify the amount of growth in an economy by using the percentage change formula?

50. What countries are presently experiencing high rates of economic growth?

12.

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ECON 295 Chapter Notes - Chapter 29: Monetary Policy, Open Market Operation, Overnight Rate

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