ECON 1100 Chapter 9: Chapter 9 Introductory Macroeconomics Notes
17 Dec 2011
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Chapter 9 macro summary: stabilizing the economy, the role of central bank. When interest rates are cut, the canadian dollar loses value on the foreign exchange market. Bank of canada employs to achieve its monetary objective of low inflation is control over interest rates. Lower real interest rates promote more spending in the economy & hence leads to higher levels of inflation. 8 times a year, bank of canada announces whether it will increase, decrease, or leave unchanged its interest rate target. The modern central banking theory of interest rate determination. Modern central banking theory: the view that the central bank changes its official interest rate directly & commercial banks respond by changing market interest rates. When central bank changes the key policy rate, commercial banks respond by changing their market interest rates. Prime business rate: the interest rate that commercial banks charge to their least risky business borrowers; also called the prime rate.
