Up to Finals

Question 1

Canadian Federation of Independent Business (CFIB)

Answer 1

It serves as a pivotal advocate for small businesses across Canada, offering timely insights on developments relevant to small business.

Chief Economist: Simon Gaudreault

Question 2

Canadian Chamber of Commerce (CCC)

Answer 2

200,000 Canadian businesses that are represented by the CCC rely on the chief economist, Stephen Tapp.

Question 3

How does CFIB and CCC help Canadians?

Answer 3

They manage inventory based on sales outlook.

They export planning based on recession signals.

Question 4

Potential Output (Long-Run)

Answer 4

The level of output that occurs when all resources are fully employed.
-What we can sustainably produce given out current resources.

Question 5

Business Cycles (Short-Term)

Answer 5

Short-term fluctuations in economic activity.
-Short-run deviations from potential output.

Question 6

Upswings in the Business Cycle

Answer 6

aka. Expansionary Phase: are characterize by a general improvement in multiple macroeconomic indicators, not just real GDP, though usually real GDP growth will be increading.

Question 7

Key Characteristics of an Upswing

Answer 7

-Real GDP Growth
-Employment Growth
-Industrial Production
-Consumer Spending
-Business Investment
-Confidence Indicators
-Credit Expansion

Question 8

Downswings in the Business Cycle

Answer 8

aka. Contractionary Phase: are characterized by broad-based decline in economic activity, sometimes preceding or comprising a recession. Real GDP growth usually will decline.

Question 9

Key Characteristics of Downswing

Answer 9

-Real GDP Contraction
-Employment Decline
-Industrial Slowdown
-Falling Consumer Spending
-Reduced Investment
-Low Confidence Levels
-Credit Contraction

Question 10

Recessions & Societal Well-Being

Answer 10

Mental Health:
-Unemployed Americans and Canadians are 2.5x more likely to suffer from depression and anxiety.

Divorce:
-Men without full-time jobs in the US are 33% more likely to divorce.

Suicide:
-A 1% rise in US unemployment is linked to a 1% increase in the suicide rate.

Question 11

Output Gap (Negative / Positive)

Answer 11

The difference between actual and potential output, measured as a percentage of potential output.

Negative: the economy is producing less than it can.
Positive: the economy is producing more than its potential (boom).

Question 12

Common Characteristics of Business Cycles

Answer 12

-Recessions are short and sharp, expansions are long and gradual.
-Business cycles are persistent.
-Business cycles impact many parts of the economy.

Question 13

Leading Indicators

Answer 13

Variables that tend to predict the future path of the economy.
-Give a sense of where the economy is headed.
-Tend to change first.

Ex. Business confidence, consumer confidence, the stock market.

Question 14

Lagging Indicators

Answer 14

they reflect past economic performance, confirming trends or changes
in the economy.

Question 15

Okun’s Rule of Thumb

Answer 15

For every percentage point that actual output is less than potential output, the unemployment rate will be around one-third a percentage point higher.

Ex. decline from 0% to -3%, unemployment rate will likely rise by about 1%

Question 16

Seasonally Adjusted (Macroeconomic Data)

Answer 16

Data stripped off predictable seasonal patterns, it helps you see underlying trends.

Question 17

Annualized Rates

Answer 17

Different data series are collected at different rates: weekly, monthly, quarterly, annually.

It is essentially data converted to the annual rate that would occur if the same rate had occurred throughout rate.

Question 18

Real Data

Answer 18

Adjusted for inflation.

Nominal data on GDP can make it difficult to tell whether an increase reflects rising prices or rising quantities.

Question 19

Data Revisions

Answer 19

Revisions are updates to later estimates.

This is because some data are frequently revised. Because initial estimates can be based on incomplete data.

Question 20

Top Ten Economic Indicators

Answer 20

1. Real GDP
2. Export Data
3. Unemployment Rate
4. Payrolls
5. Building Permits
6. Capacity Utilization
7. Retail Sales
8. Inflation
9. Labour Cost Index
10. The Stock Market

Question 21

Leading Economic Indicators

Answer 21

they signal potential future economic activity, making them valuable for forecasting.

1. Stock Market Performance
2. Manufacturing Orders (New Orders)
3. Consumer Confidence Index (CCI)
4. Building Permits
5. Jobless Claims
6. Money Supply (M2)
7. Yield Curve
8. Purchasing Managers’ Index (PMI)

Question 22

Lagging Economic Indicators

Answer 22

they reflect past economic performance, confirming trends or changes in the economy.

1. Unemployment Rate
2. Corporate Profits
3. Consumer Price Index (CPI)
4. GDP
5. Interest Rates
6. Outstanding Loans
7. Inventory Levels
8. Wages

Question 23

An Economy Watcher’s Guide

Answer 23

1. Track many indicators, not just one
2. Broad indicators BEAT narrow indicators
3. Seek just-in-time data and distinguish between leading and lagging indicators
4. Find the signal amid the noise
5. Adjust your outlook when data differ from expectations

Question 24

The Bank of Canada

Answer 24

Central banks determine a country’s monetary policy. The BOC is our central bank.

Bank of Canada Act in 1934: use tools to calm the fluctuations in general level of:
1) Production
2) Trade
3) Prices
4) Employment

Question 25

BOC Promotes Economic Welfare Through (3 other core functions)

Answer 25

1) Financial System Stability: - Ensures that the financial system (banks, markets, payments) functions efficiently and is resilient to shocks. -Ex. During covid purchased short-term bonds from commercial banks to avoid credit freezes. 2) Currency Issuance: -Designs, issues, and manages Canada's currency, maintaining public confidence in its legitimacy. -Ex. Introduction of polymer banknotes (2011-2013) 3) Funds Management: -Acts as the fiscal agent for Government of Canada--managing foreign exchange reserves, etc. -Ex. During covid the BOC supported the IMF by lending our foreign currency.

Question 26

Monetary Policy

Answer 26

The process of regulating money supply and setting interest rates to influence economic conditions.

Question 27

Key Monetary Policy Tools

Answer 27

1) Overnight Rate (main tool!) - This is the interest rate the BOC wants to see in the overnight lending market, where commercial banks lend to and borrow from each other for one day. - This rate influences all other interest rates in the economy -- for loans, savings accounts, etc. - Raise it to cool inflation; lower it to stimulate economic activity. 2) Open Market Operations - The BOC buys or sells government bonds in the open market to influence short-term interest rates and liquidity. - Buying bonds injects money into the system (expansionary) Selling bonds withdraws money (contractionary)

Question 28

Bank of Canada Independence

Answer 28

- The BOC conducts monetary policy with significant independence from the government. - The BOC is a crown corporation, not a federal government department. - Crown corporations exists where government wants to deliver a public function but also maintain a degree of operational independence, often to preserve credibility, neutrality, or efficiency. - Federal departments are direct tools of government will - Research shows that countries that give their central banks independence have lower inflation rates. Less political Interference

Question 29

Crown Corporation

Answer 29

Legal Status: separate legal entity (corporation) Governance: operates with a board of directors; headed by a CEO or Governor Autonomy: operates at arm's length from government; more operational or independence Mandate: Often delivers commercial or specialized public services Financials: may generate its own revenue (though not always for profit); budget less tightly controlled. Accountability: reports to Parliament through a responsible minister, subject to audits.

Question 30

Federal Government Department

Answer 30

Legal Status: part of the executive branch of government Governance: headed by a Minister and managed by public servants Autonomy: directly controlled and managed by government ministers Mandate: implements government policy and delivers public programs Financials: funded directly through government appropriations; tight fiscal control Accountability: directly accountable to Parliament through ministers.

Question 31

Monetary Policy in 5 Steps

Answer 31

1. Economic Model Output 2. Major Briefing 3. Policy Recommendations 4. Making the Decision 5. Communication

Question 32

The Bank's Policy Goals and Decision-Making Framework

Answer 32

The Bank's Mandate: -Low and stable inflation -Low (but not too low) and stable inflation creates a predictable environment for businesses and investors which fosters economic growth and stability.

Question 33

Four Reasons Why the Bank Doesn't Target Zero Inflation

Answer 33

1. Inflation greases the wheels of the labour market 2.The bank can lower real interest rates by more when inflation is above zero 3. A 0% inflation target runs the risk of deflation 4. Measured inflation may be overstated

Question 34

Four Factors that Shape the Bank's Policy

Answer 34

1. The neural real interest rate 2. The nominal interest rate 3. The bank compares inflation with its target inflation 4. The output gap

Question 35

Policy Rule-of-Thumb Formula

Answer 35

Overnight Rate - Inflation = Neutral real interest rate + 1/2 * (inflation - 2%) + Output gap

Question 36

How to Bank Sets Interest Rates

Answer 36

- Monetary Policy - Overnight Rate: the nominal interest rate the Bank uses as its policy tool.

Question 37

Tools the Banks Uses to Influence the Overnight Rate

Answer 37

1. The Bank offers to lend and borrow overnight funds. 2. The Bank injects or withdraws overnight funds. 3. The Bank lends and borrows bonds. 4. The Bank buys and sells government bonds.

Question 38

The Ripple Effect Throughout the Economy

Answer 38

The Bank's adjustment of the overnight rate eventually affects nearly every corner of the economy! >Other interest rates >Consumption today vs. tomorrow >Investestments >Value off the Canadian Dollar

Question 39

Unconventional Monetary Policy

Answer 39

Primary Tools: the overnight rate - Limitation: zero lower bound for nominal interest rates Other tools: encourage additional spending by pushing longer-term interest rates down. -Forward guidance: providing information about the future course of monetary policy in order to influence market expectations of future interest rates. -Quantitative easing (QE): the bank's strategy of purchasing large quantities of longer-term government bonds and other securities, such as bonds from financial institution, in an effort to among other things, put downward pressure on long-term interest rates, including mortgages.