ACC 1110 Lecture Notes - Lecture 2: Money Market, Money Supply, Monetary Policy

• School: University of Manitoba
• Department: Accounting
• Course: ACC 1110
• Professor: Jeanbih Pai

Document Summary

Money market: market in which demand and supply of money determine the interest. Interest rates and bond prices: excess supply of money (due to an increase in money supply) Interest rates will fall because people will want to put money in bonds, therefore increasing demand for bonds: when excess supply of money, also excess demand for bonds. Bank of canada independence: voters hold parliament responsible (boc governor not elected, bank must be protected from political pressures. Goals of monetary policy: keep inflation low, stable and predictable, moderate the business cycle, help the economy achieve full employment and sustained growth, for boc inflation target is 1-3% annually. If boc puts more reserves in banking system, banks will be more willing to lend money at lower interest rates therefore lowers overnight lending rate. Increases targets for overnight lending rate: use in periods of rising inflation, sell bonds, decreases money supply by selling bonds.