ECON 1100 Chapter Notes - Chapter 11: Real Interest Rate, Demand Curve, Money Supply
3 Dec 2017
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Document Summary
Monetary policy - the actions the bank of canada takes to manage the money supply and interest rates to pursue macroeconomic policy goals. Inflation targeting - conducting monetary policy as to commit the central bank to achieving a publicly announced level of inflation. Symmetric inflation targeting - conducting monetary policy based on equal concern about inflation rising above its target as about inflation falling below its target. Flexible inflation targeting - conducting monetary policy that does not rely on mechanical rules to achieve its inflation target, but tries to meet the inflation target over some time horizon (usually a two-year horizon). Two main monetary policy targets: (1) money supply & (2) interest rate. The money demand curve slopes downwards because lower interest rates cause households and firms to switch from financial assets (i. e. treasury bills) to money. An increase in the interest rate will decrease the quantity of money demanded.
