Economics 1022A/B Chapter Notes - Chapter 30: Real Interest Rate, Monetary Base, Canada Act 1982

• School: Western University
• Department: Economics
• Course: Economics 1022A/B
• Professor: Emilie Rivers

Document Summary

Bank of canada act: control the quantity of money and interest rates in order to avoid inflation and prevent excessive swings in real gdp growth and unemployment. Inflation rate targeting: monetary policy strategy in which the central bank commits to an explicit inflation target and how it will get there. Can be above or below the target. Purpose of the bank of canada"s policy actions is more clearly understood by financial market traders. Clearer understanding leads to fewer mistakes on the part of the savers and investors. Target provides an anchor for expectations about future inflation. Helps to achieve a more efficient allocation of resources and more stable economic growth. By focusing on inflation, the bank of canada sometimes permits the unemployment rate to rise or the real gdp growth to suffer. Fear is that if the inflation rate starts to go above the target, the bank of canada will force it back in, causing a recession.