Posts Tagged ‘Monetary Policy’
Thursday, May 19th, 2011
In addition to their cash reserves, the banks may be required to keep “secondary reserves” of 0-12 percent of their deposits. These secondary reserves are mostly very short-term government promissory notes called “Treasury Bill,” which can be converted into cash very quickly. Since December 1, 1981 the banks have been required to keep secondary reserves of 4 percent of all deposits.
- The control of the money supply
As discussed earlier, it is important that some control be placed on the creation of money by the banking system, so that the money supply grows neither too rapidly nor too slowly for the needs of the company. The agency responsible for controlling Canada’s money supply – the central bank – is the Bank of Canada. An agency of the federal government, it performs a considerable variety of functions, some of which are mentioned already. In this chapter, we will focus on the most important function of the Bank of Canada: its control of the money supply of the nation through its monetary policy.
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- Online Banking: Depositing A Check From Home Times have changed! I remember 10 years back, when I joined a Credit Union that happened to be outside my state, the only way I could deposit a check was to find another credit union's ATM and make a deposit....
Tags: Bank Of Canada, Banking System, Banks, Cash Reserves, Duct Cleaning, Federal Government, Government Promissory Notes, Mainstay Suites, Monetary Policy, Money Supply, Power Vac, Treasury Bill, Winnipeg
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Friday, April 29th, 2011
However, cubs on demand and the money supply may not always in themselves be sufficient. We have seen that, in addition to demand pull inflationary pressures, there are also cost-push forces, and that these can be particularly powerful and troublesome if “inflation psychology” is strong among the public. Thus, if output per worker-hour is rising only 1 percent per year, and workers seek – and get – wage increases of 10 percent per year in their attempts to protect themselves from inflation, production costs (and prices) are bound to rise quite rapidly. Thus, while stressing the vital role of monetary policy, Beigie states that “monetary policy alone is unlikely to cure inflationary pressures originating in excessive income expectation…”, and adds that “it is imperative that expectations be kept in line with potentials.”
Another way to develop a budget surplus would be to increase taxes. In theory, an increase in taxes (for example, personal income taxes) helps to combat inflation by reducing consumer spending and thus aggregate demand. On the other hand, such a tax increase could also prove largely self-defeating. If many wage-earners succeeded in offsetting it by increasing their incomes more rapidly, causing additional cost-push pressures on prices.
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Furnasmans
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- Boomer and Retirement Weekly Reader - Late on Easter Edition I'm tardy with my favorite reads of the week. It's been a busy weekend in a pleasant way, with the family around and lots going on at church. Here are few things I read this week that might interest you...
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Tags: Aggregate Demand, Attempts, Budget Surplus, Comfort Inn, Consumer Spending, Cubs, Expectation, Incomes, Inflation, Inflationary Pressures, Monetary Policy, Money Supply, Personal Income Taxes, Psychology, Wage Earners, Wage Increases, Winnipeg
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Monday, April 18th, 2011
To attack the basic cause of inflation, the government must restrain the growth of aggregate demand for goods and services, by using its monetary and fiscal policies.
Monetary policy
To combat inflation, the Bank of Canada should should impose a tight-money policy consisting of higher interest rates and reduced availability of credit. By slowing the growth of the money supply, such a policy will ease the pressures of excess demand on prices and thus help to restrain inflation. It is generally accepted among economists that no anti-inflation policy can succeed unless it includes control of the rate of growth of the money supply. Thus, whatever else is done to curb inflation, monetary restraint is essential, because if money is created too rapidly, its value will decline (because prices of goods and services will rise).
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Tags: Aggregate Demand, Bank Of Canada, Blogs, Car Dealers, Cause Of Inflation, Economists, Edmonton Alberta, Excess Demand, Fiscal Policies, Interest Rates, Mainstay Suites, Monetary Policy, Money Policy, Money Supply, Squido, Tight Money, Winnipeg
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Monday, April 4th, 2011
Excess demand is not merely the result of people wanting more: they must also have more money with which to buy, thus driving prices up. For society in general (consumers, businesses and governments) to be spending more money, there must be more money in circulation – the money supply must rise. Any period of rapid inflation is accompanied by rapid increases in the money supply. And, as we have seen, the growth of the money supply is controlled by the Bank of Canada, which is ultimately responsible to the federal government. Thus, the key factor underlying the rate of inflation – the money supply – is in the final analysis determined by the federal government. In determining its monetary policy, however, the Bank of Canada is not concerned solely with combating inflation. In particular, we have seen that increases in the money supply (easy money) can be used during recessions, to reduce unemployment. While easy money policies can help to lift the economy out of recession, there is a danger that the government will boost the money supply too quickly and/or for too long a time. Of course, this will result in a new surge of inflation, but only after a time lag.
Experts in the monetary aspects of economics say that if the money supply is increased excessively rapidly, inflation will probably begin to increase after about a year and will continue to work its way through the economy for another two years more. Thus, while rapid increases in the money supply may look like a good idea to a government faced with a recession and high unemployment, they are all too likely to cause a much worse inflation problem in the future. An excellent example of this was in Canada, where rapid increases in the money supply in 1972, 1973, and 1974 led to a very serious wave of inflation in 1973 and beyond. Following this experience, the Bank of Canada undertook to keep the rate of increase of the money supply within specified limits.
Generally then, the level of aggregate demand for goods and services is the key factor underlying the rate of inflation. Generally, inflation tends to be most severe during economic booms, when demand is high, and less severe during recessions, when demand is sluggish.
The growth rate of the money supply is, over time, the single most important determinant of the inflation rate.
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Auto Dealer Langely British Columbia Canada
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Tags: Aggregate Demand, Aspects Of Economics, Bank Of Canada, Circulation, Consumers, Easy Money, Excess Demand, Federal Government, Government Money, Governments, Inflation Problem, Monetary Aspects, Monetary Policy, Money Supply, Rapid Increases, Rate Of Inflation, Recession, Recessions, Time Lag, Unemployment
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Tuesday, January 25th, 2011
The banking business were different, so that you actually had to present it to the bank on which it was drawn, you would be so inconvenienced that you could be unwilling to accept cheques for most transactions. Fortunately, banks do accept one another’s cheques. But the problem of presenting the cheques for payment remains. If a depositor in Bank A writes a cheque to someone who deposits it in Bank B, Bank A now owes money to Bank B.
There are, of course, millions of such transactions during the course of a day, resulting in an enormous sorting and bookkeeping job. Multibank systems make use of a clearing house where interbank debts are settled. At the end of the day, all of the cheques drawn by Bank B’s customers and deposited in Bank A. It is necessary only to settle the difference between these two sums. The actual cheques are passed through the clearing house back to the bank on which they are drawn. The bank is then able to adjust each individual’s account by a set of book entries; a flow of cash between banks is necessary only if there is a net transfer of cash from the customers of one bank to those of another. This flow of cash is accomplished by a transfer between banks of deposits in the Bank of Canada.
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Coquitlam Auto Service
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Tags: Auto Service, Bank Of Canada, Banks, Book Entries, Bookkeeping, Cheque, Clearing House, Coquitlam, Course Of A Day, Debts, Depositor, Interbank, Job, Medicine, Medicine Hat Alberta, Monetary Policy, Money, Multibank, Sums
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Saturday, January 1st, 2011
The total stock of money in the economy at any moment is called the money supply or the supply of money. This total may be defined in different ways. The most commonly used measure in Canada is M1 which is defined to include currency and demand deposits.
M1 is a narrowly defined concept of money that concentrates on the medium-of-exchange function. Funds held in demand deposits can be transferred by cheque or withdrawn on demand (i.e., without prior notice being given). The two forms of demand deposit offered by the chartered banks are current accounts and personal chequing accounts.
Broader definitions of money add in savings accounts and term deposits which serve the temporary store-of-value function and are in practice quickly convertible into a medium of exchange at a known and completely secure price ($1 on deposit in a savings account is always convertible into a $1 demand deposit or $1 in currency).
In our economy the quantity of money is affected both by the private banking system and by the actions of the central bank. The private banks affect the money supply as an incidental, but very important, feature of the conduct of their own business affairs. In so doing, of course, they respond to what is happening in the economy – to the level of business activity, to interest rates, and to the demands of their customers for currency and for loans. The central bank, which in Canada is the Bank of Canada, affects the money supply as a matter of deliberate monetary policy. Just how each of these influences operates is the subject matter of this chapter.
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Winnipeg Mainstay
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Tags: Bank Of Canada, Banking System, Business Activity, Business Affairs, Chartered Banks, Chequing, Current Accounts, Demand Deposits, Exchange Function, Mainstay, Medium Of Exchange, Monetary Policy, Money Supply, Own Business, Price 1, Private Banking, Private Banks, Savings Account, Savings Accounts, Term Deposits
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