Monetary Policy in Canada

USE THE SPACE PROVIDED ON THIS ASSIGNMENT FORM – LOAD BACK in to Crowdmark PAGE BY PAGE ONLY
Crowdmark Assignment: PAGE #1: Q#1 (14); Q#2 (14) for a Total of 28 Marks for Page #1

1. Using the graph, answer the following questions:
   a) Is the economy in a recessionary gap or an inflationary gap? _ b) Calculate the amount of the gap.
   c) To return the economy to full employment, the Bank of Canada could:
   i. [Increase/decrease] the Overnight Loans Rate
   ii. [Buy/sell] Securities.
   iii. [Increase/decrease] Reserves

b. Money Supply would [increase/decrease] shifting to the [right/left].
i. Creates [excess demand for/excess supply of] money.
ii. Creates [excess demand for/excess supply of] bonds.
iii. [Buy/sell] bonds.
iv. Bond Prices [rise/fall].
v. Interest Rate [increases/decreases].
c. Investment [increases/decreases].
d. Aggregate Expenditure [shifts up/shifts down].
e. Aggregate Demand [increases/decreases] and shifts [right/left].
f. New Full-employment level of Real GDP is _ with the Price Level =

2. Using the graph, answer the following questions:
   a) Is the economy in a recessionary gap or an inflationary gap? _ b) Calculate the amount of the gap. _____.
   c) To return the economy to full employment, the Bank of Canada could:
   a. [Increase/decrease] the Overnight Loans Rate
   b. [Buy/sell] Securities.
   c. [Increase/decrease] Reserves
   d. Money Supply would [increase/decrease] shifting to the [right/left].

i. Creates [excess demand for/excess supply of] money.
ii. Creates [excess demand for/excess supply of] bonds.
iii. [Buy/sell] bonds.
iv. Bond Prices [rise/fall]
v. Interest Rate [increases/decreases]
e. Investment [increases/decreases]
f. Aggregate Expenditure [shifts up/shifts down].
g. Aggregate Demand [increases/decreases] and shifts [right/left].
h. New Full-employment level of Real GDP is _ with the Price Level =
Crowdmark Assignment: PAGE #2: Q#3 (36); Q#4 (36) for a Total of 72 Marks for Page #2

3. Monetary Policy Transmission Mechanism: The Bank of Canada wants to “COOL OFF” the Canadian Economy.
4. The Bank of Canada will (Lower/Raise) the Target Overnight Lending Rate to fight inflation in Canada.
5. To achieve and maintain the new overnight lending rate target the Bank of Canada will need to (Buy/Sell) Securities from the Chartered Banks using Open Market Operations.
6. Next: the Bank of Canada will (Increase/Decrease) the Chartered Bank’s Reserves held at the Bank of Canada.
7. Through the process of (Re-Depositing/Calling in of Loans) within the Canadian Banking System, the Bank of Canada will achieve its goal of {Increasing/Decreasing) the Money Supply in Money Market.
8. When the Money Market returns to Equilibrium (Following Question 4.) the “Short-Term” or Nominal Interest Rate would have (Increased/Decreased) in the Money Market.
9. The change in the short-term interest rate will affect the value of the Canadian dollar and subsequently Canadian Net Exports. Given the change determined in (Question 5.) above, will the Canadian Exchange Rate (Rise/Fall). This will result in Canadian Exports (Rising/Falling) and Canadian Imports (Rising/Falling).
10. The change in available loans in (Question 4.) above, will also affect the Loanable Funds Market. Given this change in the loanable funds above, the supply of loanable funds will (Increase/Decrease) and shift (Right/Left) within the Loanable Funds Market.
11. As a result of (Question 7.) above, the “Long Term” or Real Interest Rate will (Rise/Fall) in the Loanable Funds Market.
12. “Ripple Effect” caused by the change in the Target Overnight Lending Rate to fight the “Inflation” will be as follows:
    A) Consumption will (Increasing/Decreasing) given the new “Long Term” Interest Rate.
    B) Investment will (Increasing/Decreasing) given the new “Long Term” Interest Rate.
    C) Net Exports will (Increasing/Decreasing) given the new Exchange Rate in Canada.
13. Given the changes that occur in (9.) above…. The Aggregate Demand Curve will shift to the (Right/Left) & Price Level will (Rise/Fall) and C) Real GDP will (Rise/Fall).
14. Monetary Policy Transmission Mechanism: The Bank of Canada wants to get Canada out of a Recession:
15. The Bank of Canada will (Lower/Raise) the Target Overnight Lending Rate to fight inflation in Canada.
16. To achieve and maintain the new overnight lending rate target the Bank of Canada will need to (Buy/Sell) Securities from the Chartered Banks using Open Market Operations.
17. Next: the Bank of Canada will (Increase/Decrease) the Chartered Bank’s Reserves held at the Bank of Canada.
18. Through the process of (Re-Depositing/Calling in of Loans) within the Canadian Banking System, the Bank of Canada will achieve its goal of {Increasing/Decreasing) the Money Supply in Money Market.
19. When the Money Market returns to Equilibrium (Following Question 4.) the “Short-Term” or Nominal Interest Rate would have (Increased/Decreased) in the Money Market.
20. The change in the short-term interest rate will affect the value of the Canadian dollar and subsequently Canadian Net Exports. Given the change determined in (Question 5.) above, will the Canadian Exchange Rate (Rise/Fall). This will result in Canadian Exports (Rising/Falling) and Canadian Imports (Rising/Falling).
21. The change in available loans in (Question 4.) above, will also affect the Loanable Funds Market. Given this change in the loanable funds above, the supply of loanable funds will (Increase/Decrease) and shift (Right/Left) within the Loanable Funds Market.
22. As a result of (Question 7.) above, the “Long Term” or Real Interest Rate will (Rise/Fall) in the Loanable Funds Market.
23. “Ripple Effect” caused by the change in the Target Overnight Lending Rate to fight the “Inflation” will be as follows:
    A) Consumption will (Increasing/Decreasing) given the new “Long Term” Interest Rate.
    B) Investment will (Increasing/Decreasing) given the new “Long Term” Interest Rate.
    C) Net Exports will (Increasing/Decreasing) given the new Exchange Rate in Canada.
24. Given the changes that occur in (9.) above…. The Aggregate Demand Curve will shift to the (Right/Left) & Price Level will (Rise/Fall) and C) Real GDP will (Rise/Fall).