Question 1

In 2007 and 2008,Canada was affected by the global financial crisis that had begun with the U.S.housing collapse.What actions did the Bank of Canada take between the fall of 2007 and the end of 2008 in an attempt to maintain the level of economic activity in Canada? The Bank of Canada

Accepted Answer

The Bank of Canada reduced its target for the overnight rate by over 3.5 percentage points and made short-term loans to financial institutions more accessible in an attempt to maintain the level of economic activity in Canada during the global financial crisis of 2007-2008. Option A is partially correct, but it was not the only action taken by the Bank of Canada. Options B, D, and E are incorrect as none of these actions were taken by the Bank of Canada during this time period.

Question 2

In 2007 and 2008,Canada was affected by the global financial crisis that had begun with the U.S.housing collapse.By 2009,the Canadian economy had entered a recession,largely due to a reduction in investment and a________. The policy objective for the Bank of Canada and the government at this time was to ________.

Accepted Answer

The correct answer is A because during the 2007-2008 financial crisis, Canada's economy was impacted by a fall in net exports due to reduced global demand. The policy objective was to stimulate the economy by shifting the Aggregate Demand (AD) curve to the right to close the recessionary output gap, which is a gap where actual output is less than potential output.

Question 3

What is the policy response by the Bank of Canada to an inflationary gap in one region of Canada (e.g.the West)when at the same time a recessionary gap exists in another region of Canada (e.g.Ontario)?

Accepted Answer

The Bank of Canada responds to the average level of inflation in the country and implements a single monetary policy. This is because the Bank of Canada aims to maintain price stability across the entire economy, not just in one region. Therefore, even if there is an inflationary gap in one region and a recessionary gap in another, the Bank of Canada still implements a single monetary policy to maintain price stability and achieve the inflation target for the country as a whole.

Question 4

During the period of economic recovery between 1983 and 1987,the main challenge for the Bank of Canada was to

Accepted Answer

The main challenge for the Bank of Canada during the period of economic recovery between 1983 and 1987 was to accommodate the recovery and the associated growth in money demand without increasing the money supply so much as to refuel inflation. This was achieved through careful management of interest rates and money supply growth, while keeping a close eye on inflationary pressures.

Question 5

During the financial crisis that began in 2008 the Bank of Canada took actions to increase the amount of reserves in the banking system.(They were ʺinjecting liquidity.ʺ)However,the money supply (M2 +)did not increase as predictably as it would have at other times.Why not?

Accepted Answer

The panic in the world's financial sector led to a massive reduction in all types of lending from financial institutions. This means that even though the Bank of Canada injected liquidity into the banking system, the banks were not lending that money out as much as they would have during a more stable economic environment. As a result, the money supply did not increase as predictably as it would have at other times.

Question 6

In 1994,Gordon Thiessen was appointed as the new governor of the Bank of Canada.Governor Thiessen proceeded to

Accepted Answer

Gordon Thiessen, upon his appointment as the governor of the Bank of Canada in 1994, chose to continue the contractionary monetary policy initiated by his predecessor. This approach was aimed at controlling inflation, despite its unpopularity due to the potential for slowing economic growth.

Question 7

In the early 1980s,when the Bank of Canada was focusing its attention on reducing the growth rate of the money supply,an unplanned surge in ________ led to an unintended tight monetary policy which caused ________.

Accepted Answer

An unplanned surge in money demand led to an unintended tight monetary policy, which decreased inflation and caused a serious recession.

Question 8

The decision by the Bank of Canada and many other central banks to target the rate of inflation partly reflects the evidence of the

Accepted Answer

The long-run neutrality of money is a key concept that supports the decision by central banks to target inflation. It suggests that changes in the money supply have no effect on real variables like output or employment in the long run, but can influence nominal variables like the price level or inflation. This principle underlies the strategy of targeting inflation to maintain economic stability without affecting the economy's long-term growth prospects.

Question 9

In 2007 and 2008,Canada was affected by the global financial crisis that had begun with the U.S.housing collapse.By the spring of 2009,the Bank of Canada had reached a practical minimum for its nominal policy interest rate of ________%.

Accepted Answer

This is the lowest nominal policy interest rate the Bank of Canada reached during the financial crisis in 2009. It was deemed necessary to help boost economic activity and prevent further damage from the crisis.

Question 10

In 2007 and 2008,Canada was affected by the global financial crisis that had begun with the U.S.housing collapse.By early 2009,the Canadian economy was in a recession with Y < Y*.What economic policies were implemented to close the output gap?

Accepted Answer

To close the output gap during a recession, where actual output (Y) is less than potential output (Y*), both expansionary monetary policy (to lower interest rates and increase money supply) and expansionary fiscal policy (to increase government spending and/or cut taxes) are typically implemented. These measures aim to stimulate economic activity and demand, thereby helping to close the output gap.

Quiz 28: Monetary Policy in Canada

In 2007 and 2008,Canada was affected by the global financial crisis that had begun with the U.S.housing collapse.What actions did the Bank of Canada take between the fall of 2007 and the end of 2008 in an attempt to maintain the level of economic activity in Canada? The Bank of Canada

In 2007 and 2008,Canada was affected by the global financial crisis that had begun with the U.S.housing collapse.By 2009,the Canadian economy had entered a recession,largely due to a reduction in investment and a. The policy objective for the Bank of Canada and the government at this time was to .

What is the policy response by the Bank of Canada to an inflationary gap in one region of Canada (e.g.the West) when at the same time a recessionary gap exists in another region of Canada (e.g.Ontario) ?

During the period of economic recovery between 1983 and 1987,the main challenge for the Bank of Canada was to

During the financial crisis that began in 2008 the Bank of Canada took actions to increase the amount of reserves in the banking system.(They were ʺinjecting liquidity.ʺ) However,the money supply (M2 +) did not increase as predictably as it would have at other times.Why not?

In 1994,Gordon Thiessen was appointed as the new governor of the Bank of Canada.Governor Thiessen proceeded to

In the early 1980s,when the Bank of Canada was focusing its attention on reducing the growth rate of the money supply,an unplanned surge in led to an unintended tight monetary policy which caused .

The decision by the Bank of Canada and many other central banks to target the rate of inflation partly reflects the evidence of the

In 2007 and 2008,Canada was affected by the global financial crisis that had begun with the U.S.housing collapse.By the spring of 2009,the Bank of Canada had reached a practical minimum for its nominal policy interest rate of ________%.

In 2007 and 2008,Canada was affected by the global financial crisis that had begun with the U.S.housing collapse.By early 2009,the Canadian economy was in a recession with Y < Y*.What economic policies were implemented to close the output gap?