Question

c) 3 marks The Bank of Canada currently has a monetary policy target of 2% inflation. Suppose that the Federal Reserve in the
0 0
Add a comment Improve this question Transcribed image text
Answer #1

1) When a home country has lesser inflation, it is likely to impact the forieng exchange rate. However, with Canadian inflation being lower, than the US inflation the canadian dollar will not depreciate. However, US dollar might depreciate given the gact that higher inflation reduces the value of the currency in the foreign market. The real exchange rate in US dollar terms will increase due to the value of US dollar descending down.

2) In an economy, when protective measures are applied, it takes away the liberty of investment by the private sector. Also, it increases restrictions which does not encourage the foreign investment. The real exchange rate would increase in long run because of the protectionist behaviour. In short run, this might help the domestic market, but however it will later result in the quality decrease of the domestic market. Protective trade policy discourages the other countries to trade and profit making.

Add a comment
Know the answer?
Add Answer to:
c) 3 marks The Bank of Canada currently has a monetary policy target of 2% inflation....
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions
  • While Monetary Policy can have three "goals," it only has one "tool" to implement policy. That...

    While Monetary Policy can have three "goals," it only has one "tool" to implement policy. That makes it particularly difficult for the central bank - the Bank of Canada - to manage any more that "one" goal. In Canada's case, the Bank of Canada's "goal" is to maintain an inflation-Target of 2 percent per year within an operating band of 1 to 3 percent. As a result, Canada maintains a FLEXIBLE or FLOATING current regime in international markets. i. Carefully...

  • (a)- Distinguish-between-intermediate target and operating target of monetary policy (-6-marks) (b) Discuss the-major-monetary policy tools used...

    (a)- Distinguish-between-intermediate target and operating target of monetary policy (-6-marks) (b) Discuss the-major-monetary policy tools used by the- Federal-Reserve of the-USA to-influence money-supply.. (9-marks) (c)- If a-yield-curve-looks-like the-one-shown-below. What-is the-market predicting about the movement of future short-term- interest rate? What might the yield-curve indicate about the market prediction for the inflation rate in the future? (10-marks) Tn to maturt

  • While Monetary Policy can have three “goals,” it only has one “tool” to implement policy. That...

    While Monetary Policy can have three “goals,” it only has one “tool” to implement policy. That makes it particularly difficult for the central bank – the Bank of Canada – to manage any more that “one” goal. In Canada’s case, the Bank of Canada’s “goal” is to maintain an inflation-Target of 2 percent per year within an operating band of 1 to 3 percent. As a result, Canada maintains a FLEXIBLE or FLOATING current regime in international markets. i.  HOW and...

  • Which central bank has its exchange rate as a focus of its monetary​ policy? A. Bank...

    Which central bank has its exchange rate as a focus of its monetary​ policy? A. Bank of Canada B. European Central Bank C. Bank of England D. Federal Reserve

  • Question 1 (20 marks) The recent global outbreak of Covid-19 has major economic consequences. Using the...

    Question 1 (20 marks) The recent global outbreak of Covid-19 has major economic consequences. Using the AS-AD model, show what will be short-term impact of this crisis on the AIRLINE INDUSTRY Discuss some reasons why this impact may happen. b. Bank of Canada has already taken Fiscal and Monetary policy measures to stabilize the economy during the time of this outbreak. What actions has it take in terms of Fiscal Policy? In terms of Monetary Policy? (Provide specific details, Use...

  • If a monetary authority uses inflation targeting of 1% to 2% per year, deflation calls for:...

    If a monetary authority uses inflation targeting of 1% to 2% per year, deflation calls for: a balanced budget. contractionary monetary policy. no change to monetary policy. quantitative easing. An increase in the interest rate causes the aggregate _____ curve to shift _____. supply; leftward demand; leftward demand; rightward supply; rightward When the interest rate falls, the value of the U.S. dollar in foreign exchange markets tends to _____ and net exports tend to _____. fall; decrease rise; decrease fall;...

  • Critically and briefly describe the following conventional monetary policy tools and policy target and their relative...

    Critically and briefly describe the following conventional monetary policy tools and policy target and their relative effectiveness in controlling business cycle fluctuations such as state of recession and/or state of inflation. How do they operate during recession and inflation? Draw AD-AS diagram of macroeconomics model to illustrate your explanation in words. Reserve Requirements Discount Rate Open Market Operations Federal Fund Rate (Policy target) Distinguish between budget deficit and public debt with an example from actual data from the US government...

  • Question 3 This question considers long-run policies in Mexico relative to Canada. Assume Mexico's money growth...

    Question 3 This question considers long-run policies in Mexico relative to Canada. Assume Mexico's money growth rate is currently 4% and its inflation rate is 2%. Canada's money growth rate is 6% with 3.25% inflation rate. The world real interest rate is 0.75%. For the following questions, use the conditions associated with the general monetary model. Treat Mexico as the home country and define the exchange rate as Mexican pesos per Canadian dollar, E/cS. a. Calculate the growth rate of...

  • Explain the net export effect of an expansionary monetary policy 6. What is a monetary rule? And what is the purpose of a monetary rule? If the current inflation rate is 2%, the real equilibrium...

    Explain the net export effect of an expansionary monetary policy 6. What is a monetary rule? And what is the purpose of a monetary rule? If the current inflation rate is 2%, the real equilibrium federal fund rate 1.5%, target rate of inflation 2.5%, actual GDP $11 trillion, and potential GDP $ 15 trillion what should be the federal fund target rate? On what theory is this rule based? 7. What is quantitative easing ? And explain how QE can...

  • the Federal Reserve Bank has two mandates when setting monetary policy - keep annual inflation around...

    the Federal Reserve Bank has two mandates when setting monetary policy - keep annual inflation around 2% and the unemployment rate around 5%. Typically, efforts to adjust the money supply to cause inflation to decrease causes unemployment to increase and vice versa. Now, imagine a situation where the United States faces high inflation and high unemployment (stagflation). What do you think the Fed should do in this situation? Your assignment is submit a 1-2 pages, in which you outline what...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT