EC140 Chapter Notes - Chapter 30: Potential Output, Corporate Bond, Open Market Operation
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EC140 Full Course Notes
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The bank"s job is to control the quantity of money and interest rates in order to avoid inflation and, prevent extensive swings in real gdp growth and unemployment. The government of canada and the bank of canada jointly agree on the monetary policy target. The bank of canada can decide to control the quantity of money, the price of canadian money on the foreign exchange market, or the opportunity cost of holding money. The bank of canada cannot set all three. The bank must decide which of these three instruments to use. The specific interest rate that the bank of canada targets is the overnight loans rate, which is the interest rate on overnight loans that members of the large value transfer system make to each other. The bank can change the overnight rate by any amount it chooses, it normally changes the rate by only a quarter of a percentage point.