Economic Policy Overview
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Questions and Answers

What is one major component of fiscal policy that impacts economic performance?

  • Government taxation levels (correct)
  • Stock market trends
  • Interest rate fluctuations
  • Consumer behavior analysis

    • Which function is NOT associated with the Bank of Canada?

  • Setting fiscal policy (correct)
  • Monitoring inflation rates
  • Conducting monetary policy
  • Regulating currency supply

    • How does the Bank of Canada typically conduct monetary policy?

  • By adjusting public spending
  • Through open market operations (correct)
  • Setting employment rates
  • Implementing tax reforms

    • What is a common challenge governments face when implementing economic policy?

    <p>Balancing short-term and long-term economic goals</p> Signup and view all the answers

    Which of the following is considered a limitation of fiscal policy?

    <p>Lag time in decision making</p> Signup and view all the answers

    Which function does NOT belong to the Bank of Canada's monetary policy tools?

    <p>Employment statistics tracking</p> Signup and view all the answers

    When analyzing economic policy, what is a potential effect of high government spending?

    <p>Stimulating economic growth</p> Signup and view all the answers

    What is a primary goal of monetary policy executed by the Bank of Canada?

    <p>Control inflation rates</p> Signup and view all the answers

    Which of the following statements about the roles of fiscal policy is accurate?

    <p>It can directly influence unemployment rates.</p> Signup and view all the answers

    What is a primary effect of fiscal policy on the economy?

    <p>It influences economic activity and employment levels.</p> Signup and view all the answers

    Which government level is primarily responsible for health care services?

    <p>Provincial government</p> Signup and view all the answers

    What is a significant source of government revenue?

    <p>Different forms of taxation</p> Signup and view all the answers

    What is the relationship between a government's revenue and its budget balance?

    <p>Budget balance is determined by revenue less total spending.</p> Signup and view all the answers

    What is one reason fiscal policy effectiveness is debated?

    <p>There are differing views on its ability to stimulate growth.</p> Signup and view all the answers

    Which of the following services is NOT typically funded by the federal government?

    <p>Health care services</p> Signup and view all the answers

    What might be a direct impact of increased government spending under fiscal policy?

    <p>Higher levels of employment</p> Signup and view all the answers

    What primarily influences the budget balance of a government?

    <p>The difference between revenue and total spending</p> Signup and view all the answers

    How do federal and provincial governments share responsibilities in fiscal policy?

    <p>Both levels implement policies in overlapping service areas.</p> Signup and view all the answers

    What is a major characteristic of fiscal policy?

    <p>Control over taxation and government spending decisions.</p> Signup and view all the answers

    What was the federal debt as a percentage of GDP for Canada at its peak in 1995–96?

    <p>68.4%</p> Signup and view all the answers

    What caused the recent increase in Canada’s debt as a percentage of GDP?

    <p>Increased government spending due to the pandemic</p> Signup and view all the answers

    Which year is included in the measure of federal government debt as a percentage of GDP from the content?

    <p>2023</p> Signup and view all the answers

    In what year did the Bank of Canada transition from being privately-owned to government-owned?

    <p>1938</p> Signup and view all the answers

    How long is the term for which the Governor and Deputy Governor of the Bank of Canada are appointed?

    <p>7 years</p> Signup and view all the answers

    What percentage was Canada’s federal debt as a share of GDP at the end of the 2022–23 fiscal year?

    <p>42.2%</p> Signup and view all the answers

    What type of organization did the Bank of Canada start as?

    <p>A privately-owned corporation</p> Signup and view all the answers

    What was the debt-to-GDP percentage for Canada in 2000, based on the trend in the content?

    <p>35.0%</p> Signup and view all the answers

    Which of the following does not represent the function of the Bank of Canada?

    <p>Setting income tax rates</p> Signup and view all the answers

    What is the significance of measuring debt against taxpayers' ability to finance it?

    <p>It reflects economic stability and sustainability.</p> Signup and view all the answers

    What is the primary purpose of the Bank Rate?

    <p>To adjust the target for the overnight rate</p> Signup and view all the answers

    What happens when the Bank lowers the target rate?

    <p>It aims to increase borrowing and spending</p> Signup and view all the answers

    How often does the Bank announce changes to the target rate?

    <p>On eight fixed dates per year</p> Signup and view all the answers

    What is the Bank Rate relative to the operating band?

    <p>It is the upper limit of the operating band</p> Signup and view all the answers

    What is the typical response of the financial community to a change in the Bank Rate?

    <p>They adjust their interest rates accordingly</p> Signup and view all the answers

    If the Bank Rate is set at 2.0%, what would the lower limit of the operating band be?

    <p>1.5%</p> Signup and view all the answers

    Which of the following best describes the effect of raising the target rate?

    <p>It slows down the economy by encouraging saving</p> Signup and view all the answers

    What does a basis point refer to in the context of the Bank Rate?

    <p>0.01%</p> Signup and view all the answers

    Under what conditions does the Bank Rate and the operating band get adjusted?

    <p>Simultaneously when the target overnight rate changes</p> Signup and view all the answers

    What is the effect on the economy when the Bank increases the target rate?

    <p>It becomes more expensive to borrow money</p> Signup and view all the answers

    What is the primary purpose of conducting overnight repos by the Bank?

    <p>To reduce interest rates when they are above the target rate</p> Signup and view all the answers

    Which of the following steps is not involved in an overnight repo transaction?

    <p>The Bank holds the Treasury bills indefinitely</p> Signup and view all the answers

    How does an overnight repo impact the money available in the financial system?

    <p>It increases the money available by providing funds to financial institutions</p> Signup and view all the answers

    What role does the upper limit of the operating band play in determining interest rates during an overnight repo?

    <p>It defines the maximum interest rate the Bank can charge for repo transactions</p> Signup and view all the answers

    What happens during an overnight reverse repo transaction?

    <p>The Bank conducts transactions to raise interest rates</p> Signup and view all the answers

    If the overnight rate is trading at 2.10% and the Bank wants to maintain stability, what action would the Bank most likely take?

    <p>Conduct an overnight repo at 2.0%</p> Signup and view all the answers

    Study Notes

    Economic Policy Overview

    • Economic policies include fiscal and monetary strategies impacting the investment landscape.
    • Understanding the roles of the Bank of Canada is crucial to grasping government policy decisions.

    Fiscal Policy

    • Involves government spending and taxation decisions to influence economic performance.
    • A balancing act between taxes and spending affects economic activity, employment levels, and long-term growth.
    • Federal government responsibilities include national defense, employment insurance, pension income, veterans’ affairs, and foreign relations.
    • Provincial governments oversee healthcare, education, securities regulation, and social services; responsibilities may overlap.
    • The federal budget balance is revenue minus total spending; it gauges the sustainability of government debt.
    • Federal debt as a percentage of GDP was 42.2% at the end of fiscal year 2022-23, down from a peak of 68.4% in 1995-96, impacted by pandemic spending.

    The Bank of Canada

    • Established in 1934 as Canada's central bank; transitioned to government ownership in 1938.
    • The Governor and Deputy Governor serve seven-year terms appointed by the Board of Directors.
    • The Bank Rate dictates interest transactions with chartered banks, influencing the overnight rate.
    • The Bank announces target rate adjustments on eight predetermined dates, affecting financial markets.

    Monetary Policy

    • Monetary policy aims to manage economic conditions via interest rate adjustments.
    • Lowering the target rate encourages borrowing and spending, fostering economic growth.
    • Raising the target rate promotes saving, reducing consumer and business spending.
    • Open market operations involve overnight repos and reverse repos to regulate interest rates.

    Overnight Repos

    • Used to lower interest rates when the overnight market rate exceeds the target rate.
    • Banks borrow from the Bank by selling Treasury bills on an overnight basis, increasing available funds and lowering overnight rates.

    Overnight Reverse Repos

    • Employed to raise interest rates by draining liquidity from the market.
    • The Bank sells securities to financial institutions to stabilize or elevate the overnight interest rate.

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    Economic Policy CSC Volume 1 Chapter 5 PDF

    Description

    This quiz explores the intricacies of economic policies, focusing on fiscal and monetary strategies. It emphasizes the essential role of the Bank of Canada and the various responsibilities of federal and provincial governments. Understanding these concepts is key to analyzing government policy decisions and their impact on the economy.

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