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ECO102H1 (155)

Lecture 30- Money, Banking, Monetary Policy.docx

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James Pesando

Money Banking Monetary Policy Government tools to influence Aggregate Demand o Fiscal policy we did this alreadyGovernment expenditures and taxeso Monetary policy Interest rates and the money supplywith the purpose of trying to influence AD March 3 2009Bank of Canada lowers key interest rate from 1 to 05o WhyThe outlook for the global economy has continued to deterioratethe nature of the US recession is challenging for Canada 70 of our exports goes there so has huge impact on us if their economy goes downo PurposeTo increase AD to reduce spillovers from recession in US if US enters recession it could spill over to uso How Transmission Mechanism Treatment of Banking and Monetary Policy 1 Textbook a lot of institutional detail2 Lectures focus only on basics3 Students responsible ONLY for basics as in assignment 12 Banking System 1 Central bank bank of Canadaevery country has onea Uses control of money supply and interest rates to influence AD2 Commercial banks TD Royal Bank etc a Create money as byproduct of profitseeking activities try to make profit but in process create money in economy as wellMoney Canada CurrencyBank DepositsPurposeso Medium of exchangeo Store of valueo Unit of account Alternative to money barter very inefficientfind someone who is willing to take what you have for offer in exchange for something of theirs
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