1. Explain how the Bank of Canada can influence interest rates and the money supply in Canada. Be specific about the tools that are available to the Bank for such purposes. Explain how these tools would be used for expansionary policy.
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The Bank of Canada influences the money supply in Canada by setting its official interest rates. The money supply (M1) then changes in response to the change in interest rates. The interest rate that the Bank targets is the overnight rate. The overnight rate is the interest rate that major banks charge each other for overnight loans.
The monetary policy in Canada is conducted by changing the Bank's key policy rate which in turn sets off a series of similar changes in market interest rates. The Bank of Canada's key policy rate is its overnight rate target which is the rate that the Bank wants to prevail in the market. Announcements regarding the official rate are made on eight fixed, or pre-specified, dates each year. The Bank of Canada sets an ...
The solution discusses the conduct of monetary policy by Bank of Canada. It explains how the Bank of Canada can influence interest rates and the money supply in Canada.
The key objectives and what are the conventional monetary policy tools
3A) What are the key objectives and what are the conventional monetary policy tools does the Fed use to achieve those objectives?
Then you read the speech given by the Fed's Chairman Bernanke on Oct 11, 2011 at the Federal reserve Bank of Boston at this url link http://www.federalreserve.gov/newsevents/speech/bernanke20111018a.htm of the Fed's website to answer the following question 3B.
3B) Read the speech of the Fed Chairman Ben Bernanke he delivered on Oct 18, 2011 at the Federal reserve bank of Boston, which is available at this url link http://www.federalreserve.gov/newsevents/speech/bernanke20111018a.htm
After reading the contents of his speech topic, "The Effects of the Great Recession on the Central Banks' Doctrine and Practice", critically and briefly analyze the direction of changes in monetary policy practice of the Federal Reserve from its conventional monetary policy framework in the wake of the great recession the US economy currently faces.
Alternatively (for 3.b),
3.b. Read the following two news analysis on the effect of monetary policy actions on November 30, 2011 by China on the global market, including US stock market. Based on your knowledge on monetary actions and its impact on the economy, briefly analyze the connection between the reduction of reserve requirement by China's central bank and its economy plus the economy of the rest of the world, including the US economy.