Monetary Policy

These flashcards cover key vocabulary related to the monetary policy concepts discussed in the lecture.

Monetary Policy

Actions by the Bank of Canada to manage the money supply and interest rates in pursuit of macroeconomic goals.

Bank of Canada (BoC)

The central bank of Canada responsible for conducting monetary policy and ensuring financial stability.

Price Stability

Keeping inflation low and stable to ensure money remains a reliable unit of account and store of value.

High Employment

A goal of monetary policy to keep the economy close to full employment and avoid unnecessarily high unemployment.

Stability of Financial Markets

Ensuring that banks and financial markets function smoothly to avoid crises that disrupt credit.

Economic Growth

Supporting long-run growth in real GDP by providing a stable monetary environment.

Open Market Operations

The BoC's tool for controlling the money supply by buying or selling government securities.

Lending to Financial Institutions

Providing short-term funds to banks as part of the BoC's monetary policy tools.

Interest Rate Targeting

The practice of the Bank of Canada to focus on a particular short-term nominal interest rate as its primary monetary policy target.

Expansionary Monetary Policy

BoC actions that decrease interest rates to increase real GDP, typically used during recessions.

Contractionary Monetary Policy

BoC actions that increase interest rates to reduce inflation, typically used when the economy is overheating.

Overnight Interest Rate

The interest rate banks charge each other for overnight loans, a key target for the Bank of Canada.

The Taylor Rule

A monetary policy guideline that sets target interest rates based on economic conditions such as inflation and output gaps.

Inflation Targeting

A framework where the central bank announces an explicit target for inflation to guide monetary policy.

Aggregate Demand (AD)

The total demand for goods and services within an economy, influenced by interest rates.

Trade-Offs in Monetary Policy

The need to balance conflicting goals such as reducing inflation and maintaining employment.

Money Demand Curve

A graph that shows the relationship between interest rates and the quantity of money demanded.

Liquidity

The ease with which an asset can be converted into cash without affecting its market price.

Financial Stability

A condition where the financial system operates effectively, avoiding crises that can disrupt credit and the economy.

Real GDP

The measure of economic output adjusted for inflation, reflecting the value of goods and services produced.

Business Cycle

The fluctuations in economic activity over time, including periods of expansion and recession.

Policy Lag

The time delay between the recognition of an economic issue and the implementation of a monetary policy response.

Data Lag

The delay in obtaining economic data that can impact policy decisions.

Effect Lag

The time it takes for policy changes to influence the economy and aggregate demand.

Nominal Interest Rate

The interest rate before taking inflation into account, a key focus of monetary policy.

Opportunity Cost of Holding Money

The potential returns one could have earned by investing that money instead of holding it as cash.