Macroeconomics, 9/e

Campbell R. McConnell, University of Nebraska, Lincoln
Stanley L. Brue, Pacific Lutheran University
Thomas P. Barbiero, Ryerson University

The Bank of Canada and Monetary Policy

Internet Application Questions


1		Go to: http://www.nationalpost.com/home/story.html?f=/stories/20011003/717211.html and answer the following questions: Using the monetary policy concepts illustrated in chapter 15, explain why the U.S. Federal Reserve reduced interest rates in the wake of the Sept. 11 terrorist attacks. Discuss the effects that lowering interest rates would have on the U.S. money supply, interest rates, aggregate demand, real GDP, price level and exchange rates. What other economic stabilization policies has the U.S. government put in place? Briefly explain how these will help some of the components of the economy listed in question no. 1.



2		Visit the Bank Of Canada website at: http://www.bankofcanada.ca/en/ . Go into "Monetary Policy" and click on all the "backgrounders." Then answer the following questions: What is the main function of the Bank of Canada, according to this site? What is the main difference between the Bank of Canada's Overnight Rate and its Bank Rate? Explain. Why is monetary policy so difficult to conduct? Briefly discuss the concept of time lags. View the graphical section "How Monetary Policy Works," which describes the transmission mechanism of monetary policy. Briefly explain how the Bank of Canada would use monetary policy to reduce inflation in Canada. What would be the effects upon the various parts of the Canadian economy?

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