Question 9 

Fill in the blanks to make the following statements correct.

9.1 In general, there are two approaches to implementing monetary policy. The central bank can attempt to influence ____________ directly or to influence _________ directly.

9.2 The Bank of Canada does not try to influence the money supply directly because (1) the Bank cannot control the process of ___________ carried out by the commercial banks; (2) the Bank is unsure about the change in ___________ that would result from a change in the money supply; and (3) the Bank is unsure of the position of the __________ curve at any given time.  

9.3 The interest rate that commercial banks charge each other for overnight loans is called the _____________.

9.4 The bank rate is ___________ points above the target overnight interest rate. At this interest rate, the Bank of Canada stands ready to ____________ to commercial banks. At a rate __________ points below the target, the Bank of Canada stands ready to __________ from commercial banks ( and pay that rate as interest). 

 

 

9.5 The Bank of Canada can change the amount of currency in circulation through ____________. The Bank conducts these transactions to accommodate the changing demand for ___________ by the commercial banks.

 

 

9.6 If the Bank of Canada wants to stimulate aggregate demand it can implement a(n) __________ monetary policy by ____________ its target for the overnight interest rate. If the Bank wants to dampen aggregate demand it can implement a(n) _____________ monetary policy by ____________ its target for the overnight interest rate.

 

 

9.7 The long-run policy target for the Bank of Canada is the __________. The current target is to keep the inflation rate at _________ percent.   

 

 

9.8 The Bank of Canada conducts its monetary policy by announcing a change in the __________. It then conducts the necessary _____________ in order to make this rate an equilibrium in the money market. 

 

 

9.9 Economists have estimated that a change in monetary policy has an effect on real GDP after a period of _________ months and an effect on the price level after a period of __________ months. 

 

 

9.10 Because of the long time lags involved in the execution of monetary policy, it is very possible that the policy may in fact have a(n) __________ effect on the economy