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Chapter 10

Chapter 10 Stabilizing the Economy The Role of the Central Bank

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ECON 1100
Eveline Adomait

Chapter 10: Stabilizing the Economy: The Role of the Central Bank Friday, February 22, 20138:28 PM 10.1 The Bank of Canada: Canada's Central Bank Definitions Monetary Policy Objective- a central bank goal regarding a macroeconomic indicator that the bank influences Inflation Control Target- refers to either the range of annual inflation rates within the central bank aims to keep actual inflation or to the midpoint of the target range Total CPI- synonym for the CPI or consumer price index; the adjective "total" emphasizes that is a broad measure of the price level Core CPI- measure of the price level that excludes the most volatile components of total CPI Total CPI Inflation- rate of change of the total CPI Core CPI Inflation- rate of change of the core CPI Monetary Policy Instrument- a tool or technique that central bank uses to achieve a monetary policy objective 10.2 The Modern Central Banking Theory of Interest Rate Determination Definitions Modern Central Banking Theory- the view that the central bank changes its key policy rate (that is, official interest rate) directly, and commercial banks respond by changing market interest rates Official Interest Rate- a general term for the interest rate which the central bank controls to achieve its monetary policy objective; a term for the key policy rate of a central bank Prime Business Rate- the interest rate that commercial banks charge to their least risky business borrowers; also called the prime rate Benchmark Rate- an interest rate upon which other interest rates are based Overnight Rate Target- the interest rate that the Bank of Canada wants to prevail in the financial market where major Canadian institutions borrow and lend funds to
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