Question
In: Economics
Discuss the mechanisms used by the Bank of Canada to influence the money supply.
Discuss the mechanisms used by the Bank of Canada to influence the money supply. Use a simple numerical example to illustrate this. What role does the reserve ratio play
Solutions
Expert Solution
Bank of Canada uses Interest rate, open market operations, cash reserve ratio and statutory liquidity ratio as tools to govern money supply in market. Reserve ratio is minimum amount of reseeves that banks need to park with central banks and thus l lower ratio lower is fund parked with central bank which helps boost liquidity into market.
By this way the credit availability becomes easier for firms and results in higher capital expenditure and thus higher profits.
Consequently wages rise and unemployment reduces causing further acceleration in consumption and aggregate demand which ultimately led to massive price rise and real GDP also rises substantially.
Rahul Sunny answered 2 years agoRelated Solutions
1. How can a central bank influence the supply and demand for money in a country’s...
1. How can a central bank influence the supply and demand for
money in a
country’s economy? Why do the amount and price of money
matter? Describe
some of the connections between a country’s money supply and
its international
balance of payments.
Although the Bank of Canada doesn’t use changes in reserve requirements to manage the money supply,...
Although the Bank of Canada doesn’t use changes in reserve
requirements to manage the money supply, the central bank of
Albernia does. The commercial banks of Albernia have $100 million
in reserves and $1000 million in chequable deposits; the initial
required reserve ratio is 10%. The commercial banks follow a policy
of holding no excess reserves. The public holds no currency, only
chequable deposits in the banking system.
a) How will the money supply change if the required reserve
ratio...
If the Bank of Canada conducts open-market purchases, how do the money supply and the aggregate...
If the Bank of Canada conducts open-market purchases, how do the
money supply and the aggregate demand change?
a. The money supply decreases, and aggregate demand shifts
left.
b. The money supply decreases, and aggregate demand shifts
right.
c. The money supply increases, and aggregate demand shifts
right.
d. The money supply increases, and aggregate demand shifts
left.
- When chartered banks borrow from the Bank of Canada, the money supply is directly increased...
- When chartered banks borrow from the Bank of Canada, the money
supply is directly increased by the borrowing. As banks now have
excess reserves a further expansion of the money stock is made
possible
- As a general rule, a country will gain from international
trade if it exports those goods for which it has a relatively low
opportunity cost.
- Comparative advantage ensures that Canadian exports of any
good will equal Canadian imports of the same good.
Which...
Money Supply. Discuss how the Federal Reserve Bank controls the money supply. How does it expand...
Money Supply. Discuss how the Federal Reserve Bank controls the
money supply. How does it expand or contract the money supply?
Integrate Biblical principles. Does it appear that the Federal
Reserve Bank believes that money is God’s property?
1). The Fed can influence economic environment by regulating the money supply and interest rate. Discuss...
1). The Fed can influence economic environment by regulating the
money supply and interest rate. Discuss the main instruments that
the Fed uses to achieve this. In your discussion give examples of
how the Fed would address, a) inflationary gap, b) recessionary
gap.
2). Critics of federal banking policy argue that deposits insurance
is a key for banking failures. The banks enjoy a "heads I win,
tails the government loses" proposition. Several possible reforms
of deposit insurance have been suggested....
Briefly describe the 3 traditional tools used by a central bank to affect the money supply...
Briefly describe the 3 traditional tools used by a central bank
to affect the money supply and identify which is the most powerful
and commonly used method and which is the weakest method. Address
whether any part of the T account for commercial banks change with
each tool.
III. Discuss Canada’s central bank – The Bank of Canada – in detail. Discuss all the...
III. Discuss Canada’s central bank – The Bank of Canada – in
detail. Discuss all the features below
1. The origins of the bank
2. The formal structure of the bank
3. The four main areas of responsibility
4. The independence – make a case for and against independence
of the bank
5. What are the implications of the presence of the Bank of
Canada with respect to the changing nature of the world today?
III. Discuss Canada’s central bank – The Bank of Canada – in detail. Discuss all the...
III. Discuss Canada’s central bank – The Bank of Canada – in
detail. Discuss all the features below
1. The origins of the bank
2. The formal structure of the bank
3. The four main areas of responsibility
4. The independence – make a case for and against independence
of the bank
5. What are the implications of the presence of the Bank of
Canada with respect to the changing nature of the world today?
Discuss the differences between Bank of England and Bank of Canada in detail.
Discuss the differences between Bank of England and Bank of Canada
in detail.
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