Monetary Policy Tools Flashcards
Define Monetary Policy
attempt to influence the economy though manipulation of money supply, interest rate and credit conditions
What are Open Market Operations?
purchases and sales of government bonds by the central bank
most important tool for influencing money supply
What does the purchasing of bonds lead to?
MM (money multiplier) kicks in => Money Supply expands
What does the selling of bonds lead to?
Money Supply Contracts
What are Foreign Exchange Market Operations?
purchases and sales of foreign money by the central bank
Define Bank Rate
rate of interest that the Bank of Canada charges commercial banks
What effect on the economy does changing the bank rates have?
lower bank rate expands economy
higher bank rate contracts economy
What effect on the economy does changing Reserve Requirements have?
decreasing RR expands Ms
Increasing RR contracts Ms
Define Quantitive Easing
the introduction of new money into the money supply by a central bank
What is Moral Suasion?
arm twisting to get banks to comply to policy by the Bank of Canada
What are Government Deposits?
federal government holds accounts with BoC and commercial banks
How does the switching of Government Deposits effect the money supply?
move money from BoC to commercial bank, Ms expands
move money from commercial banks to BoC, Ms contracts
