Slide 1 Today we are talking about Monetary Policy and the effects - PDF document

Slide 1 Today we are talking about Monetary Policy and the effects of easing and tightening the money supply through Bank of Canada. This is an Economics 12 lesson. Students have previously learned about fiscal policy, monetary policy, interest rates and inflation and today we are putting it all together. Slide 2 The monetary policy impacts the economy, and attempts to achieve stability or rise in gross domestic product (GDP) growth rate, maintain low rates of unemployment, and maintain foreign exchange rates in a predictable range. Monetary policy is different from fiscal policy. Monetary policy relates to borrowing, consumption and spending by individuals and private businesses, while the fiscal policy refers to taxes, government borrowing and spending. This is all done through the Bank of Canada. In the United States it is done through the Federal Reserve. Every country will maintain their own monetary policy. Slide 3 With low interest rates businesses and individuals increase their loans for purchases. This is more beneficial than saving your money at low rates. As more money comes into circulation in the market, the overall economic activity is boosted which helps a country come out of the slowdown or recession. An example of the low to zero interest rates maintained by many leading economies across the globe since the 2008 financial crisis. Slide 4 The overnight lending rate of the Bank of Canada is the main tool to control inflation. Inflation is is a sustained increase in the general price level of goods and services in an economy over a period of time. This makes it hard for some people to afford basic necessities.The bank can therefore decide if they need to increase or decrease inflation by using the overnight lending rate. Slide 5 The increasing and decreasing the lending rates will have different effects on the economy.

Slide 6 Easy money occurs when the Bank of Canada wants to make money move between banks more easily, because of lower interest rates. When banks have access to more money, interest rates to customers go down because banks have more money they want to invest.This is done to stimulate the economy and lower the unemployment rate. But if this trend continues long enough, it can eventually reverse due to fear of inflation. Easy money is also can also be thought of as cheap money. The goal is to increase demand (as we will see on the next slide) Tight money is the opposite. The Bank of Canada is restricting the money supply. The Bank needs to slow down economic activity because prices are getting too high. They increase the interest rates which will in turn decrease the amount of people obtaining loans and therefore decrease demand. Slide 7

For further information and a short 2 minute video visit: https://www.investopedia.com/terms/t/tightmonetarypolicy.asp Although it talks about the Federal Reserve, the impact with the Bank of Canada is the exact same. Key Terms: Inflation: ​ ​ sustained increase in the ​ general price level ​ of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services

Monetary Policy: ​ Process of drafting, announcing and implementing the plan of actions taken by the central bank of Canada. The monetary policy impacts the important facets of the economy, which include attempts to achieve stability/rise in ​ gross domestic product (GDP) ​ growth rate, maintain low rates of and ​ unemployment ​ . Aggregate Demand ​ : ​ Aggregate demand is an economic measurement of the sum of all final goods and services produced in an economy. Aggregate Supply: ​ ​ Aggregate supply, also known as total output, is the total supply of goods and services produced within an economy at a given overall ​ price level ​ in a given period.