11.0 Introduction
Learning Objectives
After reading this chapter, learners will be able to:
- Answer the question, “What is Monetary Policy?”
- Explain the Money Market and the Bank of Canada’s Choice of Monetary Policy Targets
- Discuss Monetary Policy tools and Economic Activity
- Analyze Monetary Policy in the Aggregate Demand and Aggregate Supply Model
The Bank of Canada is Canada’s most powerful economic policymaker in many respects. The Bank sets and carries out monetary policy. Deliberations about fiscal policy can drag on for months, even years, but the Bank of Canada can, behind closed doors, set monetary policy in a day—and see that policy implemented within hours. The Board of Governors can change the overnight interest rate several times yearly. The impact of the Bank’s policies on the economy can be quite dramatic. It can promote a recession or an expansion. It can cause the inflation rate to rise or fall. The Bank wields enormous power.
With what tools are the Bank’s policies carried out? And what problems exist in trying to achieve the Bank’s goals? This chapter reviews the goals of monetary policy, the tools available to the Bank of Canada in pursuing those goals, and how monetary policy affects macroeconomic variables.
Attribution
“11.1 Monetary Policy in the United States” from Principles of Macroeconomics by University of Minnesota is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted.
