Monetary policy tools (Chapter 10)

Question 1

Monetary policy

Answer 1

• attempts to influence the economy through manipulation of money supply, interest rates, and credit conditions

Question 2

Open market operations

Answer 2

• purchased and sales of government bonds by the central bank

Question 3

quantitative easing (QE)

Answer 3

• central bank buys financial assets from commercial banks

Question 4

Foreign exchange market operations

Answer 4

• purchases and sales of foreign money by the central bank (to manipulate exchange rate)

Question 5

sterilzation

Answer 5

• the process of offsetting foreign exchange operations with open market operations so as to cancel out any domestic money supply effect

Question 6

Bank rate

Answer 6

• rate of interest that Bank of Canada charges commercial banks

Question 7

Government deposit switching

Answer 7

• federal government holds accounts at both Bank of Canada and commercial bank

Question 8

Moral swasion

Answer 8

• arm twisting by Bank of Canada