Chapter 5 - Economic Policy Flashcards
What is the Keynesian Theory of economics?
The government can/should intervene to achieve economic growth and stability.
What is Monetarist Theory?
The economy is inherently stable and should be left to its own devices (will auto-correct itself). Instability in money supply is the real cause of fluctuations and inflation.
What is Supply-Side economics?
The market should be left to its own devices and gov intervention kept to a minimum (other than tax rate changes).
What is the bank of Canada’s most important function? What are its other functions?
- Conduct monetary policy
- Act as gov’s fiscal agent
- Add/remove bank notes
What is the size of the BoC’s operating band?
50 basis points
What is the Bank Rate?
The minimum rate which the BoC will lend money on a short term basis to the chartered banks and members of Canadian Payments Assoc. (Top end of operating band)
What are SPRAs used for?
Special Purchase and Resale Agreements relieve unwanted upward pressure on overnight rates (cap the op band by lending at the max rate)
What are SRAs?
Sale and Repurchase Agreements - used to set a minimum to the Operating Band (Bank sells securities at low end of band)
What is LVTS?
Large Value Transfer System - for netting between large financial institutions.
What is a drawdown?
When the BoC transfers deposits from the chartered banks to lower the supply of money (increases interest rates)
What is a redeposit?
Transfer of funds from BoC to the chartered banks (adds money to the system to lower interest rates)
