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Suppose that the inflation rate in Canada is close to 1%
Suppose that the inflation rate in Canada is close to 1%. Given the policy of the Bank of Canada regarding the inflation target. which of the following monetary policies could be implemented (true) and which one could not be implemented(false)? a. The Bank of Canada purchases government bonds from commercial banks, True false b. The Bank of Canada increases the bank rate. True False The Bank of Canada sells government bonds to individuals True False d. The Bank of Canada decreases the required reserve ratio. True O False e. The Bank of Conada purchases us dollars paid in Canadian dollars) O True False
Expert Solution
a. False. In the time of inflation the bank of canada sell the government bonds to commercial banks.
b. True. In inflationary period the banks are increase their bank rate to reduce the velocity of money.
C. True. When the banks sell the government bonds to the public that reduces the money circulation. People purchase the bonds with their money in hand.
d. False. The decreased required reserve ratio increases the amount of money in the circulation.
e. True. The practice of purchase of US dollars with using Canadian dollar reduces the volume of money in the circulation and also it increases the assets of bank of Canada.
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