a. Suppose that the Canadian economy is experiencing an inflationary gap. Give a reason what might...
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a. Suppose that the Canadian economy is experiencing an inflationary gap. Give a reason what might cause an inflationary gap in Canada? Draw an AS-AD graph to show the gap, and explain how inflation rate, unemployment rate and real GDP growth rate will change during the expansion? b. Suppose that you are the governor of the central bank and the target for the overnight rate is at 1%. In expecting upward pressure on core CPI inflation rate, what new target for the overnight loans market would you propose in the coming monetary policy meeting? Justify your choice. c. State how central bank may reach the new target for overnight rate using both operational band and open market operation? Draw appropriate graph to support your argument. d. What economy wide ripple effects would you expect following above central bank's actions? Explain in detail and in chronological order. Draw appropriate graphs (loanable funds market, AS-AD) to support your arguments. e. What is the main challenge central bank may face in this process? a. Suppose that the Canadian economy is experiencing an inflationary gap. Give a reason what might cause an inflationary gap in Canada? Draw an AS-AD graph to show the gap, and explain how inflation rate, unemployment rate and real GDP growth rate will change during the expansion? b. Suppose that you are the governor of the central bank and the target for the overnight rate is at 1%. In expecting upward pressure on core CPI inflation rate, what new target for the overnight loans market would you propose in the coming monetary policy meeting? Justify your choice. c. State how central bank may reach the new target for overnight rate using both operational band and open market operation? Draw appropriate graph to support your argument. d. What economy wide ripple effects would you expect following above central bank's actions? Explain in detail and in chronological order. Draw appropriate graphs (loanable funds market, AS-AD) to support your arguments. e. What is the main challenge central bank may face in this process?
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