1. FISCAL POLICY
SPENDING
-government spending on infrastructure can have a stimulative effect on the whole economy.
TAXATION
-the government may increase taxation to lower inflation, making it more difficult for consumers and businesses to spend.
2. THE BANK OF CANADA
-Monetary policy
-The Canadian financial system
-Physical currency
-Funds management
3. MONETARY POLICY
-Inflation
Interest Rates
The Bank raises interest rates.
• Borrowing becomes more expensive.
• Borrowing decreases and consumption and business investment therefore decrease.
Money Supply
The Bank reduces the money supply.
• Interest rates rise in response.
• Borrowing becomes more expensive.
• Borrowing decreases and consumption and business investment thus decrease.
-Recession
• reverse
IMPLEMENTING MONETARY POLICY
• Target overnight rate: operating band that is 50 basis points wide
• Open market operations : Special Purchase and Resale Agreements (SPRA), commonly called Specials, and Sale and Repurchase Agreements (SRA)
• Drawdowns and redeposits
4. THE CHALLENGES OF GOVERNMENT POLICY
Timing lags, Political considerations, Future expectations, Coordination of federal and provincial policies, High federal debt, Impact of international economies
Fiscal and Monetary Economic Policy
-recession
• Increase government spending • Decrease taxes
Increase money supply • Decrease interest rates
-High inflation
• reverse