1. Monetary Policy in Practice ‘Sup ?

3. A Dangerous Game… Money supply increases ($200 for passing GO) BUT No increase in output (fixed # of properties) Eventual Results: – game merely inflates prices – $ eaten up paying for inflated rents ; inevitable bankruptcy for many – ultimately, most players are NOT better off

4. WTF ???

5. As Well… problems if too little money is created compared to output of goods too few $ “chasing” too many goods;

6. WTF ???

8. Goldilocks in Government… Deflation Inflation Just Right !!!

9. Enter Monetary Policy… Government tools to adjust the size of the money supply Effects the economy by influencing the expansion of money and credit Ensure that Canada’s economy has just the right amount of money to purchase goods without causing either inflation or deflation

12. “regulate credit and currency in the best interests of the economic life of the nation, to control and protect the external value of the national monetary unit [aka, the Loonie] and to mitigate by its influence fluctuations in the general level of production, trade prices and employment.” The Canadian Bank Act, 1934

13. ‘Sup ?

14. Functions of the Canada’s Central Bank (aka Bank of Canada) Director of monetary policy – Control growth of money supply by regulating interest rates, credit, and currency Banker to chartered banks – Manages borrowing/ lending between Canada’s chartered banks (BMO, TD, RBC, CIBC, Scotiabank, etc.) – Prop up confidence in chartered bank by giving it a cash advance Banker to the federal government – Holds government’s revenues, buys /sells government bonds (ex. CSB’s) & pays out interest on them, handles foreign exchange reserves (ex. US dollars, Euros, Yen, etc.) Issuer of Currency – designs, mints& prints, varies amounts of notes needed, fights counterfeiting

15. Bank of Canada: Organizational Chart

16. ‘Sup ? Steven Poloz, Governor of the Bank of Canada, 2013-2020

17. Advantages of an Independent Central Bank manage nation’s money supply free of political interference (ie. in best interests of economy) Ex. Germany 1920’s hyperinflation Protect value of money by separating power to spend money (gov’t) from power to create money (central bank)

18. Worries about Accountability… What if the Central Bank abused its powers? “if government disapproves of the monetary policy being carried out by the Bank, it has the right and responsibility to direct the Bank as to the policy which the Bank is to carry out.” Bank of Canada Annual Report, 1961

19. ‘Sup ? Hon. Jim Flaherty, Canada’s Minister of Finance, 2013 - ?

20. “Although the government has the ultimate power, … The governor [of the Bank of Canada] exercises such power on a daily basis that he or she is considered to be the most influential person in the Canadian economy.” Economics Now, p. 268

21. “How You Doin’?