Supply, Demand, and Central Bank Influence Free Essay Example

Economics notes

Flexible Exchange Rate – The exchange rate is determined by supply and demand and is not directly affected by the Central Bank – It can be affected by the actions of the Central Bank. – Demand for Canadian dollars increases if the Bank of Canada raises Canadian interest rates for foreign countries Supply decreases and exchange rate rises Fixed exchange rate – Central bank in foreign exchange market set by government Stop unregulated supply and demand – Bank of Canada, CAD Wants to adjust the /USD price, will sell CAD for the highest price target and buy CAD under the target – can have no bank limit of CAD, a bank can create up to creeping rate – to reach the same rate as the central bank rate follow the path given by the government or central bank.

– The difference between the entry anchors is the target price change – The best fixed exchange rate target balance of the exchange rate The real exchange rate – The relative value of goods produced in Canada compared to goods produced abroad – Real GDP of other countries will come from one unit of Canadian GDP.

Bank of Canada – Monetary policy responsibility – Money adjustment – Interest rates to ensure full employment Price stability Inflation is low and does not affect people’s decision making. Inflation Control – Inflation rate target range set by the central bank as monetary policy ● Bank of Canada targets annual inflation rate from CPI ● Monetary policy target of 2% ● Bank of Canada, Inflation below interest rate uses CPI as a guide rates set by funds and loans – Central bank affects short-term rates but not long-term rates – Bank of Canada assets are the overnight rate that matters – Overnight rates determine all other short-term rates Low interest rates –> – Borrowing and increase spending, save less High interest rates — > – borrow less and spend more