ECON102 Chapter Notes - Chapter 30: Nominal Interest Rate, Demand Curve, Output Gap

• School: University of Waterloo
• Department: Economics
• Course: ECON102
• Professor: Wentang Kuo

Document Summary

Bank of canada act objective of monetary policy is to control the quantity of money and interest rates in order to avoid inflation and prevent excessive swings in real gdp growth and unemployment. Joint statement of the government of canada and the bank of canada agree that target inflation will be 2%. Inflation rate targeting monetary policy strategy in which the central bank commits to an explicit inflation target and to explaining how its actions will achieve that target. Rationale for an inflation-control target: there"s 2 (cid:373)ai(cid:374) (cid:271)e(cid:374)efits flo(cid:449) f(cid:396)o(cid:373) adopting an inflation-control target: The purpose of the boc"s poli(cid:272)(cid:455) a(cid:272)tio(cid:374)s is (cid:373)o(cid:396)e (cid:272)lea(cid:396)l(cid:455) u(cid:374)de(cid:396)stood (cid:271)(cid:455) fi(cid:374)a(cid:374)(cid:272)ial (cid:373)a(cid:396)ket t(cid:396)ade(cid:396)s. Target provides an anchor for expectations about future inflation. Firmly held expectations of low inflation make the short-run output-inflation tradeoff as favourable as possible. Firmly held inflation expectations make better economic decisions, which helps achieve more efficient allocation of resources and more stable economic growth.