Monetary Policy in Canada Quiz

To control the quantity of money and interest rates to prevent excessive swings in real GDP growth, unemployment, and inflation. The primary goal is to maintain price stability, with the aim of achieving a 2% annual inflation rate.

The target inflation rate range is set within a flexible band of 1 to 3 percent. The Bank of Canada aims to steer inflation towards the 2 percent midpoint of this range.

The Bank of Canada Act 1935 outlines the Bank's responsibility to manage the money supply and interest rates to control inflation and promote stable economic growth.

Monetary policy strategy focused on achieving a specific inflation rate target. The Bank of Canada uses various tools to influence interest rates and ultimately affect inflation.

A key measure of inflation. The Bank of Canada uses CPI to track changes in prices of a basket of goods and services consumed by households.

A measure of inflation that excludes volatile and temporary price changes, such as food and energy prices. The Bank of Canada considers core inflation as a better indicator of the underlying inflation trend.

Core inflation is the primary guide for the Bank's policy actions. The Bank aims to keep core inflation within the inflation-control target range.

An agreement between the Bank of Canada and the Government of Canada outlining the shared objective of maintaining a 2 percent inflation target. This agreement is valid until December 31, 2026.

The Bank of Canada aims to keep inflation within a specific range (typically around 2%). This target aims to promote stable economic growth and avoid price instability.

The Bank of Canada achieved success in keeping inflation low and stable for a significant period, primarily before 2021. The inflation rate consistently remained within the target range, often under 2%.

Since 2021, inflation has risen significantly above the Bank of Canada's target range, exceeding 3%. This surge in inflation presents a challenge for the Bank's monetary policy.

Having a clear inflation target helps savers and investors make better decisions, as they have a more predictable economic landscape. It also anchors expectations about future inflation, reducing uncertainty.

Some argue that focusing solely on inflation may lead to higher unemployment or slower economic growth. Additionally, aggressive measures to curb inflation above the target range might trigger recession or hurt exports.

Advocates for inflation targeting believe that keeping inflation consistently low and stable is the best way to achieve full employment and long-term sustainable economic growth. This approach fosters predictable, positive economic conditions.

The Bank of Canada, specifically its Governing Council, is responsible for implementing monetary policy. The Governor and the Minister of Finance must regularly consult and coordinate.

In exceptional cases, the Minister of Finance can directly influence the Bank of Canada's monetary policy. The Minister can issue directives to the Bank, compelling them to follow a specified course.

The interest rate the Bank of Canada sets for the upcoming six-week period. It reflects the central bank's view on the appropriate monetary policy stance.

The upper limit of the operating band within which the overnight rate fluctuates. It represents the rate at which banks can borrow from the Bank of Canada.

The lower limit of the operating band within which the overnight rate fluctuates. It represents the rate at which banks can deposit funds at the Bank of Canada.

The Bank of Canada's actions to buy or sell government securities in the open market to influence the supply of reserves in the banking system.

A system where the Bank of Canada sets a target overnight rate and controls the supply of reserves to keep the rate within an operating band, bounded by the bank rate (upper limit) and the deposit rate (lower limit).

A system where the central bank sets the overnight rate target as a floor, and there is no upper limit. The bank typically intervenes to ensure that the overnight rate does not fall below the target.

The Bank of Canada uses open market operations to buy or sell government bonds to adjust bank reserves and manage the overnight rate within the operating band.

The quantity of reserves that banks want to hold at the Bank of Canada, determined by their lending and borrowing needs and influenced by the overnight rate.

The Bank of Canada raises the overnight rate target to fight high inflation and bring real GDP back to potential GDP. This leads to a decrease in bank reserves, which then reduces the supply of money.

When the Bank of Canada reduces bank reserves, the supply of money decreases. This leads to an increase in the short-term interest rate, as borrowers compete for the reduced amount of available funds.

A reduction in the supply of loanable funds, caused by a decrease in bank loans, leads to an increase in the real interest rate. This makes it more expensive for businesses to borrow money for investments.

A decrease in investment, resulting from higher real interest rates, lowers aggregate planned expenditure. This ultimately reduces aggregate demand and brings real GDP back to potential GDP.

The Bank of Canada aims to lower inflation and restore price stability. This is achieved by raising interest rates and decreasing the money supply, ultimately reducing aggregate demand and bringing real GDP back to potential GDP.

Funds held by banks at the central bank, used to settle interbank transactions.

The amount of reserves banks hold at the central bank.

The process by which changes in the overnight rate affect economic variables like inflation and GDP growth.

Lowering the overnight rate can stimulate the economy by decreasing borrowing costs, increasing investment and consumption, and leading to higher GDP growth and inflation. Raising the overnight rate can slow the economy by increasing borrowing costs, reducing investment and consumption, and potentially leading to lower inflation.

The interest rate at which banks lend reserves to each other overnight. It's set by the Bank of Canada to influence short-term interest rates and the money supply.

The interest rate on long-term government bonds, typically with maturities of 10 years or more. It reflects investor expectations about future inflation and economic growth.

The interest rate on short-term government debt with a maturity of 3 months. It's a key indicator of the short-term cost of borrowing.

The Bank of Canada directly controls the overnight rate, which influences other short-term rates. These short-term rates move closely together, mirroring the overnight rate.

Changes in the overnight rate have a weaker influence on long-term rates. While they move in the same direction, the connection is loose.

The difference between Canada's interest rate and the interest rates in other countries. It influences the exchange rate between the Canadian dollar and other currencies.

A lower overnight rate encourages banks to borrow more reserves, leading to an increase in the money supply and bank loans.

The real return on long-term investments, adjusted for inflation. It's determined by the market for loanable funds and influences spending decisions.