Chap 5, Economic Policy

Question 1

Informs government decisions around the use of its spending and taxation power.

Answer 1

Fiscal Policy

Question 2

A balancing act between taxation and spending.

Answer 2

Fiscal Policy

Question 3

These gov’ts implement certain elements of fiscal policy

Answer 3

Federal and Provincial

Question 4

Responsible for national defense, employment insurance, pension income for seniors and the disabled, veterans’ affairs, foreign affairs, and indigenous and northern affairs.

Answer 4

Federal Government

Question 5

Responsible for health care, education, securities regulation, and various social services.

Answer 5

Provincial Government

Question 6

The governments revenue comes primarily from different forms of ______

Answer 6

Taxation

Question 7

Consists of accumulated past deficits minus accumulated past surpluses in the federal budget

Answer 7

National Debt

Question 8

Governments finance deficits by issuing debt instruments such as ___ and ___ in the capital markets.

Answer 8

Bonds and T-bills

Question 9

When the government borrows significantly from the capital markets, less capital remains for businesses to borrow. This effect is referred to as _____, and can have a negative impact on the economy.

Answer 9

Crowding Out

Question 10

Comprises of 3 major components: government spending, consumer spending, and business spending and investment

Answer 10

GDP

Question 11

Tells us what the government plans to do with respect to taxation and spending.

Answer 11

Federal Budget

Question 12

Government spending on infrastructure can have a _____ effect on the whole economy.

Answer 12

Stimulating

Question 13

If the government wants to stimulate the economy, it can ____ personal taxes.

Answer 13

Lower

Question 14

As with spending, the government may _____ taxation to lower inflation, making it more difficult for consumers and businesses to spend.

Answer 14

Increase

Question 15

The nation’s central bank

Answer 15

Bank of Canada

Question 16

Responsible for the affairs of the Bank of Canada

Answer 16

Governing Council

Question 17

The Governing Council is composed of

Answer 17

The governor, the senior deputy governor, and four deputy governors.

Question 18

The main role of the __________ is “to promote the economic and financial welfare of Canada”

Answer 18

Bank of Canada

Question 19

The Bank’s four main areas of responsibility:

Answer 19

Monetary Policy, The Canadian Financial System, Physical Currency, Funds Management

Question 20

Oversees the main clearing and settlement systems.

Answer 20

The Bank of Canada

Question 21

The ultimate source of liquidity in the financial system and referred to as the lender of last resort.

Answer 21

Bank of Canada

Question 22

Responsible for designing, printing, and distributing Canadian dollars

Answer 22

Bank of Canada

Question 23

The fiscal agent for the government of Canada

Answer 23

Bank of Canada

Question 24

Manages the governments foreign currency reserves

Answer 24

Bank of Canada

Question 25

Manages the governments federal debt, which consists mostly of T-bills and marketable bonds.

Answer 25

Bank of Canada

Question 26

Provides advice to the federal government regarding what debt can be issued, at what interest rate, and for what term, based on its assessment of the capital markets

Answer 26

Bank of Canada

Question 27

The goal of __________ is to preserve the value of money by keeping inflation low, stable, and predictable.

Answer 27

Monetary Policy

Question 28

Since 1991, the Bank has acted to keep inflation between ___ and ___ by using inflation-control targets

Answer 28

1% and 3%

Question 29

The Bank's key monetary policy tools are _____ and _____

Answer 29

Interest rates and the money supply.

Question 30

The Bank can influence interest rates and the money supply through the following means:

Answer 30

Target overnight rate, Open market operations, Drawdowns and Redeposits

Question 31

The most important monetary policy tool the Bank uses

Answer 31

Target overnight rate

Question 32

The overnight rate operates within an operating band that is ____ basis points wide.

Answer 32

50

Question 33

50 basis points are equal to ___ %

Answer 33

.5%

Question 34

The Bank Rate is the ____ ____ of the operating band

Answer 34

Upper Limit

Question 35

The Bank announces whether or not it will change the target rate on _____ pre-set fixed dates during the year.

Answer 35

8

Question 36

The two main Open Market Operations that the Bank uses to conduct monetary policy are ____________ and ___________

Answer 36

Special Purchase and Resale Agreements (SPRA) and Sale and Repurchase Agreements (SRA)

Question 37

________ are used by the Bank when it wants to push interest rates down. (SPRA) or (SRA)

Answer 37

Special Purchase and Resale Agreements (SPRAs)

Question 38

Open Market operation used to increase the interest rate.

Answer 38

Sale and Repurchase Agreements (SRAs)

Question 39

Each day, billions of dollars flow through Canada’s financial system to settle transactions between major financial institutions. These transactions include cheques, wire transfers, direct deposits, pre-authorized debits, and bill payments. To facilitate the transfer of these payments, the Bank established the ___________ in 1991

Answer 39

Large Value Transfer System (LVTS)

Question 40

This system allows participating financial institutions to conduct large transactions with each other through an electronic wire system.

Answer 40

Large Value Transfer System

Question 41

Helps to ensure that trading in the overnight market stays within the Bank's 50-basis-point operating target.

Answer 41

Large Value Transfer System

Question 42

A ______ is the transfer of deposits to the Bank from the chartered banks, which effectively drains the supply of available cash balances from the banking system.

Answer 42

Drawdown

Question 43

Drawdowns cause interest rates to _______

Answer 43

Increase

Question 44

A _____ is a transfer of funds from the Bank to the chartered banks. This increase in deposits and reserves increases the money supply.

Answer 44

Redeposits

Question 45

Redeposits cause interest rates to ________

Answer 45

Decrease

Question 46

In economics, there are delays between recognizing an economic problem, deciding what policy action to take to solve the problem, implementing the policy, and ultimately seeing the benefit of the policy in action. These _________ make monetary policy decisions more difficult and policy actions less effective.

Answer 46

Timing Lags

Question 47

Politicians typically work towards re-election, which creates what is known as a political business cycle. While campaigning, they may advocate lowering taxes or spending on programs and infrastructure in their own riding. However, once they are elected, the national economic reality may call for lower spending. This challenge is called _______

Answer 47

Political Considerations

Question 48

Expectations can cause a policy initiative to fail. For example, the gov’t may announce that it will cut personal tax rates to stimulate the economy. However, if the consensus is that the gov’t is doing so only because it is near the end of its mandate, or if the tax cut is widely expected to be soon reversed, consumers may see it as a short-term action. Therefore, consumers my choose to save the tax cut, instead of increase spending, and the policy initiative fails. This challenge is called _______

Answer 48

Future Expectations

Question 49

Canada is a large country, with diverse populations and needs. For policy initiatives to work, they must be implemented nationally. However, not all of Canada may need the same intervention. This challenge is called _______

Answer 49

Coordination of federal, provincial, and municipal policies

Question 50

Several years of deficits can reduce the gov’ts flexibility with the respect to spending. The higher the gov’t debt, the higher the interest payments that must be made. A gov’ts plan to lower spending to fight inflation may fail if the interest payments are very high. This challenge is called _______

Answer 50

High Federal Debt

Question 51

The economic performance of our major trading partners can have a significant impact on our economy This challenge is called _______

Answer 51

The impact of international economies

Question 52

A government's _________ influences economic activity, employment levels, and sustained long-term growth.

Answer 52

Fiscal Policy