ECON 295 Lecture Notes - Lecture 12: Canadian Dollar, Overnight Rate, Core Inflation

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lemonfox406

23 Mar 2017

School

McGill University

Department

Economics

Course

ECON 295

Professor

Mayssun El- Attar Vilalta

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Document Summary

For any given money demand curve, any central bank must choose between: targeting the money supply, targeting the interest. Two approaches to the implementation of money policy changes in the supply of money do not necessarily result in the desired change in interest rate (demand can change too) The bank of canada could attempt to shift the ms curve directly. Changing the amount of currency in circulation. Buying or selling government securities in the financial markets. Example: using currency to buy 000 of government bonds. This increases the amount of cash reserves in the banking system by 000. Commercial banks will then be able to lend out these new reserves, increasing the amount of deposits. The bank of canada and the overnight interest rate. The bank can more or less control the overnight interest rate. Keep actual overnight rate of 0. 5% band.

Related Questions

1. In a system of fractional-reserve banking, even without any action by the central bank, the money supply declines if households choose to hold (less, more) currency or if banks choose to hold (less, more) excess reserves.

2. If the Fed makes an open-market purchase of government bonds, it will (decrease, increase) the money supply. Whereas if there is an increase in the discount rate on Fed lending, it will (decrease, increase) the money supply.

3. Chloe takes $100 of currency from her wallet and deposits it into her checking account. If the bank adds the entire $100 to reserves, the money supply(decreases, doesn't change, increases), but if the bank lends out some of the $100, the money supply (decreases, doesn't change, increases).

4. If the reserve ratio is 0.25 and the central bank increases the quantity of reserves in the banking system by $120, the money supply increases by how much?

cyanworm559

Fill in the following blanks:

The money supply consists of Currency + Checkable Deposits (NOT including currency in bank's vaults and NOT including banks' deposits at the Fed). Before the First National Bank made the $90 loan, no one outside the bank held any currency, and Checkable Deposits were equal to 100, so the money supply was equal to 0 + 100 = 100.

When the First National Bank made the loan, the borrower received $90 in cash, but checkable deposits did not fall. Thus, the money supply was equal to $ (..........)of currency in the hands of the non-bank public plus $(........) of Deposits, for a total of $(............).

While cleaning your apartment, you find a $50 bill under the sofa cushion. You deposit the $50 into your checking account. If the reserve requirement is 20%, what is the maximum amount that the money supply could ultimately increase? (Remember that the money supply is Currency + Deposits - and that the amount of Currency fell by $50 when you put the cash in the bank).

The change in currency would be (...............) and the maximum ultimate change in deposits would be at most(..............) , so the money supply would rise by at most(..........) .

Suppose you deposit the $50, but the bank chooses not to lend any of its excess reserves. By how much would the money supply ultimately increase in this case?

The change in currency would be (................) and the ultimate change in deposits would be(............) , so the money supply would rise by(...........) .

raspberrywasp757

1. (0.2 pt) In a system of fractional-reserve banking, even without any action by the central bank, the money supply declines if households choose to hold (less, more) currency or if banks choose to hold (less, more) excess reserves.

2. (0.2 pt) If the Fed makes an open-market purchase of government bonds, it will (decrease, increase) the money supply. Whereas if there is an increase in the discount rate on Fed lending, it will (decrease, increase) the money supply.

3. (0.2 pt) Chloe takes $100 of currency from her wallet and deposits it into her checking account. If the bank adds the entire $100 to reserves, the money supply (decreases, doesn't change, increases), but if the bank lends out some of the $100, the money supply (decreases, doesn't change, increases).

4.(0.2 pt) If the reserve ratio is 0.25 and the central bank increases the quantity of reserves in the banking system by $120, the money supply increases by how much? (Make sure to show all your work.)

chocolateswan996

ECON 295 Lecture Notes - Lecture 12: Canadian Dollar, Overnight Rate, Core Inflation

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