Modify-open market operations-switching government deposits

Assume that you are the governor of the Bank of Canada. The economy is experiencing sharp and prolonged inflationary trend. What modify in (a) open market operations, and (b) switching government deposits would you assume? Describe in each of the case how the change you advocate would influence chartered bank cash reserves and affect the money supply.

View Complete Question

Comments & Conversion

Expert

Verified

To decrease inflation, the Bank of Canada would increase interest rates. It would be accomplished typically through open-market operations (selling bonds), however could also be obtained by switching government deposits from the chartered banks to the Bank of Canada. In both of the cases it would decrease chartered bank cash reserves.

The restrictive monetary policy would decrease the lending ability of the banking system, enhance the real interest rate, decrease investment spending, decrease aggregate demand, and decrease inflation.

Related Questions in Finance Basics

Q : Define Reimbursements Reimbursements :

Reimbursements: The amount received as a payment for the cost of services executed, or of other expenditures made for, or on behalf of, other entity (example, one department reimbursing the other for administrative work executed on its behalf). Reimbu

Q : Four major phases of the business cycle

Normal 0 false false

Q : What is Victim Compensation and

Victim Compensation and Government Claims Board, California: It is an administrative body in state government exercising quasi-judicial powers (that is, power to make rules and regulations) to set up an orderly procedure by which the Legislature will

Q : Supply and demand 1. Albert Jones went

1. Albert Jones went to his local department store to purchase a pair of Levi s. He thought that the style of Levi that he wanted would sell for about $30 a pair. When he got to the store, he saw a sign which said, Levi s, all styles, $18 a pair. Albert bought three pairs of Levi s. The behavior of

Q : Define Financial Controls Financial

Financial Controls: Any measure of how fine a company or department controls its costs, at times stated as how far beneath or over budget it is. Financial controls are a critical portion of any financial system. They make sure that the resources are b

Q : Describe free cash flows Describe "free

Describe "free cash flows?" It represents the total cash flows from business operations which are obtainable to be distributed to the suppliers of a firm's capital each year either within the form of interest to the debt holders, or dividends to

Q : Equilibrium interest rate Normal 0

Normal 0 false false

Q : Explain Generally Accepted Accounting

Generally Accepted Accounting Principles (GAAP): The accounting rules, principles, conventions, and procedures which are employed for accounting and financial reporting. The GAAP for governments are put by the Governmental Accounting Standards Board (

Q : Recognizes and state the significance

Normal 0 false false

Q : Making capital structure decisions In a

In a perfect capital market, what advice would you give a corporate financial manager on making capital structure decisions? Justify your advice. How and why would your advice change as real world capital market imperfections are introduced?

Discover Q & A

Leading Solution Library

Avail More Than 1427081 Solved problems, classrooms assignments, textbook's solutions, for quick Downloads

No hassle, Instant Access

Start Discovering

18,76,764

1925049
Asked

3,689

Active Tutors

1427081

Questions
Answered

Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!

Submit Assignment