Chapter 12

Question 1

Bank of Canada

Answer 1

owned by federal government but it is a totally independent institution. The governor of the bank of Canada is hired by the federal government

Question 2

United States central bank

Answer 2

“fed” and consists of 12 banks that form a common board of directors.

Question 3

4 Functions of the Bank of Canada

Answer 3

1. Currency Maintainance
2. Banker of Government
3. Bank of Commercial banks
4. Implement monetary policy

Question 4

Currency Maintainance

Answer 4

printing money and counterfeit prevention

Question 5

Banker of Government

Answer 5

Gives gov loans and manages gov debt + deposits. Manages reserves of foreign currency

Question 6

Bank of commercial banks

Answer 6

Lender of last resort ; if a commercial bank is not able to borrow from anybody its last option is to borrow from the bank of Canada

Question 7

Implement Monetary Policy

Answer 7

It manages the money supply to control inflation

Question 8

Inflation control targeting

Answer 8

The key objective of monetary policy in Canada is to keep inflation control between 1% and 3% , around 2%. (peep graph). Once the inflation rate goes out of the range the bank of Canada will use the monetary policy to bring it back.

Question 9

Instruments of bank of canada to affect money supply

Answer 9

1. Open Market Operations
2. Reserve Ratio
3. Targeting overnight rate

Question 10

Open market operations

Answer 10

buy and selling government bonds

Question 11

Reserve Ratio

Answer 11

fraction (%) of deposits that commercial banks keep as reserve cash.

Question 12

Targeting overnight rate

Answer 12

Bank of Canada sets a range for overnight rate.

Question 13

Overnight loan

Answer 13

Short-term loan for 24 or 48 hours between commercial banks

Question 14

Overnight rate

Answer 14

interest rate paid on overnight loans ; in Europe the call it LIBoR, London inter bank offer rate.

Question 15

Bank rate

Answer 15

Interest rate paid by a commercial bank to the bank of Canada when it borrows from it. is above target rate by 0.25%

Question 16

Deposit Rate

Answer 16

Interest rate received by a commercial bank on its deposits with the bank of Canada. is below target rate by 0.25%

Question 17

Velocity of circulation

Answer 17

How many times a $ is used in transactions on average during a year, constant inflation rate, fixed value.

Question 18

Inflation happens when:

Answer 18

there is too much money to by few goods and services

Question 19

The Main cause of inflation is

Answer 19

that money supply grows faster than real GDP production

Question 19

The Main cause of inflation is

Answer 19

that money supply grows faster than real GDP production

Question 20

The quantity theory of money

Answer 20

Shows the relation between the inflation rate and the growth rate of money supply relative to our production.

Question 21

Excess Reserves

Answer 21

Extra reserve that can be given as a loan.

Question 21

Excess Reserves

Answer 21

Extra reserve that can be given as a loan.