The tighten momentary policy in order to slow

Topics: EconomicsInflation

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Last updated: July 19, 2019

The articlediscusses how the Canadian unemployment rate fell again in December leading tothe 13th consecutive month of job growth. This low rate of 5.

7%makes it more likely that banks will increase interest rates. This fall inunemployment indicates that the Canadian economy is expanding. As a result, itis anticipated that the bank will tighten momentary policy in order to slowdown the economy. Ratner explains how the market is currently anticipatingthree rate hikes to occur in 2018. The article also addresses that a rate hikeis not guaranteed due to the ambiguity surrounding NAFTA and trade. Inaddition, the timing of this rate hike will depend on the results from theBusiness Outlook Survey. If the results indicate an expanding economy the Bankof Canada will increase rates sooner.

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 This articledirectly relates to our discussions in class. When the economy expands the Bankof Canada is concerned that inflation will begin to increase at high rates. Asaddressed in lecture, high inflation leads to uncertainty in the financialsystem and reduces the purchasing power for those on fixed incomes.

As a result,the bank is attempting to slow down the economy. To do this they are using atechnique called monetary policy. Monetary policy is an approach used by thecentral bank to influence economic performance.

By increasing interest ratesthe Bank of Canada will be tightening monetary policy. This will make borrowingmoney more expensive, which will shrink the money supply. Therefore, theeconomy will slow down allowing for inflation to be controlled. We discussedthis system of tightening the monetary policy in depth during class and the effectsof high inflation on the economy. As a result, the article connects directly totopics explored in lecture.

 

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