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ECON102 Chapter Notes - Chapter 30: Open Market Operation, Potential Output, Loanable Funds

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OC2146671
10 Dec 2017
School
University of Waterloo
Department
Economics
Course
ECON102
Professor
Maryann Vaughan

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ECON102 Full Course Notes
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Document Summary

Fewer surprises and mistakes on the part of savers and investors: the target provides an anchor for expectations about future inflation. If the inflation rate increases towards or beyond the upper limit of the target range, the bank of. Canada might reign in aggregate demand and push the economy into a recession: the bank might permit the value of the dollar to rise on the foreign exchange market, causing exports to suffer. If the bank decreased the quantity of money, both the interest rate and the exchange rate will increase. If the bank increased the interest rate, the quantity of money would decrease and the exchange rate would increase. In recent years, the overnight loans rate has been set low to avoid recession. If a bank can borrow from the bank, it will not borrow from another source unless the interest rate is less than or equal to the bank rate.

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Related Questions

The central bank of the country Oakville is hosting its annual economic policy symposium with monetary policy as the theme. Several bankers and professional economists are in attendance. Dorah Baker, a professor at the University of Oakville, is of the opinion that monetary policy should target the rate of growth of the money supply. This, she claims, would increase economic stability. Jack Snyder, a delegate attending the conference, does not agree. He thinks that monetary policy is highly effective in controlling inflation and so the central bank should continue to follow inflation-targeting. In fact, Jack also believes that the central bank should bring inflation down from the current level of four percent to as close to zero as possible.

Which of the following, if true, would suggest that monetary policy may not be very effective in substantially reducing inflation from the current level of four percent?

A. Oakville's central bank has maintained the interest rate at 0.25 percent for the last two years.

B. The highest level of inflation that Oakville has ever experienced is 5.5 percent.

C. Although the current level of inflation is considered to be high, the economy has also been growing at an impressive pace.

D. The marginal propensity to save in Oakville has traditionally been low.

E. Inflation in recent years has been driven by rising costs of production.