# A policy instrument an intermediate target either a

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a policy instrument an intermediate target either a policy instrument or an intermediate target neither a policy instrument nor an intermediate target (8) is is not (9) has some does not have a (10) a policy instrument an intermediate target either a policy instrument or an intermediate target neither a policy instrument nor an intermediate target (11) can be can not be Classify each of the following as either a policy instrument or an intermediate target, and explain why. 1. The ten-year Canada bond rate is (1) . It (2) affected by the Bank's monetary policy tools and (3) direct effect on economic activity. 2. The monetary base is (4) . It (5) affected by the Bank's monetary policy tools and (6) direct effect on economic activity. 3. M1+ is (7) . It (8) affected by the Bank's monetary policy tools and (9) direct effect on economic activity. 4. The overnight rate is a (10) . It (11) directly affected by the tools of the bank of Canada. Practice Questions 15 of 22 2017-10-08, 12:05 AM
61. What procedures does the Bank of Canada use to control the overnight rate? Practice Questions
62. If the Bank of Canada has an interest-rate target, why will an increase in the demand for reserves lead to a rise in the money supply? Hint: The graph to the right shows an increase in the demand for reserves from to . If is the interest-rate target, what can the Bank of Canada do to keep the overnight interest rate near its target? R d 1 R d 2 or
63. Assume that the equilibrium real overnight rate is 2.0% and the target for inflation is %. Suppose that the inflation rate is at %, leading to an inflation gap of % (equal to % %), and real GDP is % above its potential, resulting in a positive output gap of %. The Taylor rule suggests that the federal funds rate should be set at: 1.0 2.0 1.0 2.0 - 1.0 0.5 0.5 A. %. 2.75 B. %. 4.75 C. %. 0.75 D. %. 5.75
64. The NAIRU is the rate of unemployment at which:
Why does control of this interest rate imply that the Bank of Canada will lose control of nonborrowed reserves?
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65. The Phillips curve theory predicts an increase in inflation if output is ________ potential and the rate of unemployment is ________ the natural rate of unemployment.