Csc- Chpt 5

Front 1

Rational Expectations theory

Back 1

firms and workers are rational thinks and can evaluate all the consequences of a government policy- neutralizes the impact

Front 2

Keynesian Theory

Back 2

governments must intervene - rational for government spending and taxation to stabilize

Front 3

Monetarist Theory

Back 3

economy is inherently stable and left to its own adjusting mechanism, will automatically move to a stable path -- controlling inflation will allow the economy to grow at its optimal rate

Front 4

Supply- Side economics

Back 4

for prosperity, a market must be left on its own nd gov intervention should be minimal (only through tax rates, not through inflation like monetarist)

Front 5

Fiscal Policy

Back 5

use of government spending and taxation powers to pursue full employment and grwth

Front 6

civil service pension fund

Back 6

special purpose acount that the government has access to when trying to fill a deficit budget
this account is the main reason that financial requirements (borrowing from the public to meet the deficit) are less then the actual deficit

Front 7

hows does fiscal policy impact the economy?

Back 7

1) Spending: purchase g/s or civil service transfers (not counted in gdp)
2) taxes: changes because of the tax base (number of people or companies paying tax) or the rate changed
Taxes: direct (income), sales tax, payroll, capital (assets), property

Front 8

functions of the bank of canada

Back 8

underwriting for Gov, govs fiscal agent, conduct monetary policy, administers govs deposits and funds,

Front 9

monetary policy

Back 9

regulating the growth in money supply and credit by controlling short term interest rates
time lagging exists, therefore it is forward thinking
always aim for mid 2%

Front 10

inflation target rates

Back 10

1-3%
- approaches the top, demand for g/s is to high and ST rates must be increased
- falls to bottom, growth is slowing/weak and support is needed through a decrease in interest rates

Front 11

implementing monetary policy

Back 11

1. overnight rate: inst lend each other money on an over night basis- operates on 50 basis point .005 - bank always lends at the upper and borrowers at the lower
2. bank rate: min rate that the bank of canada will lend on a ST basis to other chartered banks and members of the Canadian Payments Association --> this is the upper limit of the operating band

Front 12

open market operations

Back 12

bank uses to main open market operations
1. special purchase & resales- SPRA's- relive undesired upward pressure on overnight financing rates by intervening and offering to lend at the upper limit of the operating band
2. Sale and repurchase- offset undesired downward pressure- offers to borrow at a lower rate

Front 13

draw downs

Back 13

(apart of bank cash management) refers to the transfer of deposits to the bank from the chartered banks, draining the supply of available cash, makes less funds available for loans and consumers, upward pressure on interest rates

Front 14

LVTS

Back 14

large value transfer system: large institutions to conduct large transactions with each other through an electronic wire system
- often banks have surpluses or deficits and need to borrow at the overnight night
- ensures that trading in the overnight market stays within the banks 50bp operating target

Front 15

redeposit

Back 15

(apart of bank cm)
transfer of funds from THE BANK to the chartered banks, more avail for , downward pressure on i so incentive to increase loans to consumers