ECON 102 Lecture Notes - Lecture 21: Real Interest Rate, Interest Rate, Liquidity Trap
Document Summary
If real gdp rises by 1% above potential gdp, the bank should raise the overnight rate by. If inflation rises 1% above its target of 2 percent, the bank should raise the overnight lending rate by 0. 5% When real gdp is equal to potential gdp and inflation is equal to its target, the overnight rate should remain about 4%, implying a real interest rate of 2% Dominant component of canadian national stabilization policy. Economy slowed at the end of 2000, so bank cut interest rates in 2001. Expansion in 2002 led to increased rates. Reduced rate to stimulate the economy in 2004. Started dropping again in 2008 to an all time low of 0. 25% in 2009. Began to increase the overnight lending rates in the autumn of 2010, but rates stayed at historic lows throughout 2014. Monetary policy has certain limitations and faces real-world complications. Increased transparency of monetary policy and accountability.
