For each of the following situations, identify whether the Bank of Canada is lik
ID: 1116207 • Letter: F
Question
For each of the following situations, identify whether the Bank of Canada is likely to pursue an expansionary or a contractionary monetary policy. [25 points]
a.The unemployment rate is at 0.5 percent. (Reference: natural unemployment rate is estimated slightly above 6%)
b.The economy is experiencing record growth in GDP.
c.The unemployment rate is at 15 percent.
d.Inflation has reached 10 percent, a recent high.
e.An earthquake recently demolished a major city, causing a major recession.
Explanation / Answer
Monetary policy has two types Expansionary (increase the money supply)and Contraction monetary policy ( reduces the money supply) is used by central bank according to monetary conditions Deflation or Inflation
A) Expansionary monetary policy by increasing the Money supply in the economy unemployment rates can be solved by using low bank rate, open market operation, lowering required reserve ratios
B) Contraction monetary policy here it shows that economy reached full employment by future rising aggregate demand in the economy results in inflation because all the resource is fully utilized.
c) Expansionary monetary policy here it shows the rapid growth of unemployment by increasing money supply central bank encourages the investment level in the economy and reduces the unemployment in the economy.
D) Contraction monetary policy here the case by reducing money supply it reduces excessive aggregated demand in the economy
E) Expansionary monetary policy in order to solve the problem requires expansionary monetary policy in the economy.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.