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11. Monetary Policy (Ch10-11)

Principles of Macroeconomics (with Xtra!)

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M onetary policy is about ensuring that money can play its vital role in helping our economy run smoothly. To do this, the Bank of Canada focuses monetary policy on protecting the value of Canadian money by keeping inflation low and stable. The ultimate objective Keeping inflation low and stable is essential to keeping the economy on the smoothest possible track for long-lasting growth and job creation. The Bank’s focus on inflation means that the output gap between the potential and actual performance of the economy is kept as narrow as possible. Monetary policy aims at avoiding inflationary “boom-and-bust” cycles that lead to painful recessions and rising unemployment. Keeping inflation low and stable allows people to make spending and investment plans with a greater sense of confidence about the future. This helps to encourage the long-term investment that contributes to long-lasting growth and job creation, and leads to productivity growth that brings real improvements in our standard of living. Low inflation creates many other direct
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