1. What the Bank of Canada Tries to Do Economics 11 Stewart

2. Monetary Policy Process by which the government affects the economy by influencing the expansion of money and credit How is this done? Economic prosperity? Economic downswing?

3. Types of Monetary Policies Easy money - Monetary policies of low interest rates, easy availability of credit and growth of the money supply - Can be used to curb recessions

4. Types of Monetary Policies Tight Money - High interest rates, more difficult availability of credit and decrease in the money supply - Used to restrain economy in times of expansion

5. Let’s Decide on Policy Increase or Decrease? ItemEasy MoneyTight Money Consumer Spending Business Investment Interest Rates Bank Lending Money Supply Growth Inflation Unemployment

6. ItemEasy MoneyTight Money Consumer Spending IncreaseDecrease Business Investment IncreaseDecrease Interest RatesDecreaseIncrease Bank LendingIncreaseDecrease Money Supply Growth IncreaseDecrease InflationIncreaseDecrease UnemploymentDecreaseIncrease

7. The Role Of Interest Rates Affect our decisions as consumers about saving and borrowing money Higher interest rate = Affects the economy: - business decisions - value of Canadian dollar - government budgets

8. Demand for loan able funds Three sources - Consumers - Business - Government

9. Supply and Demand Let’s Refresh Lower interest rates = more funds borrowed Higher interest rates = less funds borrowed

10. How Does Interest Affect Us? Major purchases Business Investment Rate of return – amount of extra revenue an investment will bring in Government borrowing

11. Where does the money come from? Individuals Businesses Chartered banks Supply and demand?

12. Where does the money come from? Individuals - Increase or decrease amount of $ in their savings account Reasons for saving? (recap)

13. Where does the money come from? Business - Same as individuals (amount of $) - Save money to cover future purchases - May also save for future expansion

14. Where does the money come from? Banks How do banks create money? - If interest rates increase, chartered banks will want to supply more $ Why?