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Macroeconomics Chapter 10.docx

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ECON 1100
Eveline Adomait

Macroeconomics Chapter 10 Stabilizing the Economy: The Role of the Central Bank 10.1 The Bank of Canada: Canada’s Central Bank Key monetary policy objective is inflation control - inflation control target of 1-3% annual inflation that is seeks to achieve by pursuing 2% annual inflation - Monetary policy objective- a central bank goal regarding a macroeconomic indicator that the bank influences Inflation-control target- refers either to the full inflation target range of the central bank or the target midpoint Total CPI- another way of saying the CPI (Consumer Price Index), but adding total as an adjective emphasizes that it’s a relatively broad measure of the price level Core CPI- measure of the price level that excludes the most volatile components of the total CPI Total CPI inflation- rate of change of the total CPI Core CPI inflation- rate of change of the core CPI Monetary policy instrument- a tool or technique that a central bank uses to achieve a monetary policy objective The bank raises its interest rate target in response to higher inflation and cuts its interest rate target in response to lower inflation 10.2 The Modern Central Banking Theory of Interest Rate Determination Modern Central Banking Theory- the view that the central bank changes its key policy rate (that is, official interest rate) directly, and commercial banks respond by changing market interest rates Official interest rate- a general term for the interest rate which the central bank controls to achieve its monetary policy objective; a term for the key policy rate of a central bank - The central bank, the Bank of Canada, changes its official interest and in response commercial banks change the market interest rate they charge custome
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