1. Monetary Policy

2. What is it?
This is the other tool that the government has available to help achieve its macroeconomic goals.
Monetary Policy: policy designed to change the money supply, credit availability, and interest rates.

3. Who Controls Monetary Policy?
The Bank of Canada (the central bank in Canada) is owned publically.
They are the ones who set the short-term interest rates (also known as the overnight rate or the policy rate. This is the rate at which banks (like TD, Royal Bank, etc) lend and borrow money from each other)

4. The Bank of Canada About the Bank of Canada Fill in the Blanks:
The Bank of Canada wants to keep inflation around ______%.
When the economy heats up, the Bank of Canada will _________ interest rates.
When the economy cools down, the Bank of Canada will _________ interest rates.

5. The 3 Jobs of the Bank of Canada
To control the overnight interest rate, which is reported on 8 times a year.
The Bank of Canada is also in charge of the regulations in place in our financial system.
They also act as banker for the Federal Government.

6. Changes in the Overnight Rate
Changes in the overnight rate usually affect changes in other interest rates (mortgage rates, personal loan rates, etc), which affect consumers spending patterns.
Ex: Overnight Rate ↑, Mortgage Rate ↑ , number of people buying houses ↓.

7. Does the Bank of Canada Influence the Money Supply?
Yes, indirectly!
When the overnight interest rate is increased, people will borrow less money, spend less money and pay back their loans.
This means that the amount of Money available, or the money supply decreases.

8. Explore!
Visit the Bank of Canada’s website to find out the following information:
Who is the current Governor of the Bank of canada, how are they selected, and how long they are in power for?

9. Explore - Part 2
Google “Why Monetary Policy Matters A Canadian Perspective” and read more about the importance of Monetary Policy.