Textbook Notes (362,815)
Canada (158,059)
Economics (800)
ECON 1100 (224)
Chapter 9

Chapter 9 Introductory Macroeconomics Notes

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University of Guelph
ECON 1100
Bram Cadsby

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 Changes have consequences for financial investors 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 economyhence 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 targetThe Modern Central Banking Theory of Interest Rate DeterminationModern Central Banking Theory the view that the central bank changes its official interest rate directlycommercial banks respond by changing market interest rates When central bank changes the key policy rate commercial banks respond by changing their market interest ratesPrime Business Rate the interest rate that commercial banks charge to their least risky business borrowers also called the prime rateOvernight Target Rate the interest rate that the Bank of Canada wants to prevail in the financial market where major Canadian institutions borrowlend funds to settle daily transactions with one anotherOvernight Rate the market interest rate that financial institutions charge eachother for overnight loansLarge Value Transfer SystemLVTS an electronic wire system overseen by the Bank of Canada that allows major financial institutions operating in Canada to send large payments backforth to eachotherSettlement Balances accounts held at the bank of Canada by financial institutions for the purpose of settling their net payment obligations to one another Held by all LVTS participants at Bank of CanadaOperating Band term used by Bank of Canada to describe the range of possible overnight interest rates from 25 percentage points below the overnight target rate to 25 percentage point above the targetBank Rate the interest rate that the Bank of Ca
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