1 – Review Flashcards
1
Q
What is consumer price index (CIP)?
A
- Stats Canada measures it
- *generally a good measure of the rate of inflation
- Prices a standardized “basket” of goods and services
2
Q
What is the difference in core CPI?
A
- Removes the MOST VOLATILE components
o FUEL
o FOOD
3
Q
Effects of covid on the economy
A
- Want to keep inflation between 1-2% (target is 2 %)
- Why so much inflation during covid?
o PRODUCTION chains were shut down
o NO SUPPLY=price goes up
o *all about supply and demand
4
Q
Why is the target 2% and not 0%?
A
- Having inflation encourages people to spend money
- “buy today, because tomorrow it will be worth more”
5
Q
Why do interest rates go up in terms of inflation?
A
- Go up when inflation is HIGH
o Want to dampen the economy - If lower interest rates=increase economy
6
Q
Why is Trump president?
A
- He blamed Joe Biden on inflation
o Wasn’t actually him as it was the WHOLE WORLD who was affected
7
Q
What are the bank’s main tools for conducting monetary policy?
A
- **Overnight rate (POLICY INTEREST RATE)
- Quantitative easing (QE): only do when things are really dire
o Don’t see it very often
8
Q
What is fiscal policy?
A
- When the money comes from the government
- Monetary policy=central banks actions and communications used to manage supply of money
9
Q
What is prime rate?
A
- Typically 1.5-2.5% higher than the overnight rate
- *only for the VERY BEST CLIENTS (large corporations)
- Mortgages are generally BELOW PRIME
10
Q
5 year mortgage rate
A
- Generally higher as it is more risk for the bank
- *inverted right now
11
Q
How have mortgage rates changed in relationship to Prime since 2023?
A
- Hardly moved
- **Be CAREFUL, even though Prime goes down it is NOT reflected in your fixed mortgage
o Very wide spread right now - Variable mortgage=much more tightly connected to the Prime rate
12
Q
Where is Canada/World in economic cycle?
A
- Expansion to recession to expansion to recession (REPEAT)
o Not always sure of distance between peaks and troughs - *in an expansionary phase currently (might change due to Trump)
13
Q
“signal” and “noise”
A
- Noise: random sounds
o DISTRACTION - Signal: meaningful info that you attempt to detect
o TRUTH - *need to be able to interpret the noise
14
Q
Forecasting of GDP
A
- Margin of error=3.2%
- If less than 0=recession if there for 2 consecutive months
- OR 6% =crazy huge and not for a long time
15
Q
Chaos theory
A
- Smallest changes in a very complex system can result in very large changes in system’s behaviours
- “butterfly flaps its wings in SA, then causes a tornado in Texas”
