Switching government deposits and swap transactions
Redeposit
or deposit switching- the act of transferring government funds from
the central bank to the commercial banks. ( INCREASE BANK RESERVES
AND MONEY SUPPLY)
Drawdown-
a transfer of government funds from the commercial banks to the
central banks. (REDUCE MONEY SUPPLY, LOSE RESERVES)
Purchase
and resale agreement
Moral suasion
Any
persuasive tactic used by the central bank to secure the cooperation
of the commercial banks. (amplify expansionary monetary policy)
AN
EXPANSIONARY MONETARY POLICY MAY BE EFFECTIVE AGAINS UNEMPLOYMENT,
WHILE A CONTRACTIONARY MONETARY POLICY MAY BE EFFECTIVE AGAINST
INFLATION.
Key
policy rate- also the key interest rate or the target for the
overnight rate, which is the interest rate at which major financial
institutions borrow and lend one day funds among themselves.
Overnight
rate- the target interest rate of key policy rate set by the Bank
of Canada for borrowing and lending among major financial
institutions.
Transmission
mechanism- the process by which changes on the banks’s target
interest rate of key policy reate affect the economy.
Liquidity
trap- a situation in which the rate of interest is so low that
people prefer to hold large amounts of money over other forms of
liquid assets.
THE
STEEPER THE LIQUIDUTY PREFERENCE CURVE, OTHER THINGS BEING EQUAL, THE
MORE EFFECTIVE MONETARY POLICY WILL BE.
THE
FLATTER THE MARGINAL EFFICIENCY OF INVESTMENT CURVE, OTHER THINGS
BEING EQUAL, THE MORE EFFECTIVE MONETARY POLICY WILL BE.
