Chapter 12 Flashcards Preview

Macroeconomics > Chapter 12 > Flashcards

Flashcards in Chapter 12 Deck (18):
1

Monetary policy

The policy decisions that the bank of Canada makes in managing the money supply and interest rates,consistent with its inflation-control objective

2

Overnight interest rates

Interest rate that major financial institutions charge each other for one day loans

3

Bank rate

The interest rate the bank of Canada charges Major financial institutions on the loans it extends to them

4

Bankers deposit rate

The interest rate bank of Canada pays major financial institutions on surplus funds deposited at the bank of Canada

5

Open market operation

Purchase and sale of government securities by the Bank of Canada

6

Velocity of money (V)

The average number of times that a dollar is used in purchasing final goods or services in a one-year period

7

Quantity theory of money and prices

A theory of the connection between the money supply and the price level when the velocity of money is constant

8

What is the Bank of Canada?

Canada's central bank, owned by the federal government. The governor of the bank has considerable independence in formulating the bank of Canada's monetary policy

9

What year was the Bank of Canada first opened?

1935

10

What are the four main responsibilities of the Bank of Canada?

1) Currency
2) Funds and Management
3) The Financial System
4) Monetary Policy

11

What are the tools of the Bank of Canada?

The two major tools are open market operations and changing the target for the overnight interest rate

12

What is the equation of exchange?

M x V = P x Q

M is the money supply, V is the velocity of money, P is the average level of prices of final goods and services, and Q is real GDP in a given year.

13

What is the quantity theory of money?

The theory that draws a connection between the money supply and the price level when the velocity of money is constant is referred to as the quantity theory of money and prices

14

What is the quantity theory of money?

The theory that draws a connection between the money supply and the price level when the velocity of money is constant is referred to as the quantity theory of money and prices

15

What is the federal reserve system?

Comprises separate banks in Boston, New York, Philadelphia, Richmond, Atlanta, Dallas, Cleveland, Chicago, St.Louis, Minneapolis - St.Paul, Kansas City, and San-Francisco.

These 12 banks act in unison in major issues, to a limited extent can set their own policies. The chairman of the Board of directors is seen as the most important policy maker in all of the U.S.

16

What is the velocity of money equation?

V = P x Q / M

17

Currency (as a Bank of Canada Responsibility)

Monopoly power over issuing legal tender in the form of bank notes. BoC over sees the production, printing and design of the bank notes, and is in charge of replacing worn - out currency. Counterfeit prevention.

18

Funds Management (as a Bank of Canada Responsibility)

Fiscal agent to the federal government by providing debt management services.