Chapter 7 - Monetary Policy

http://www.vancouversun.com/opinion/Monetary+policy+should+based+inflation+trends+blips/2601037/story.html

Summary:

In summary, the article linked above talks about the consumer price index rising, how pundits were wondering if the Bank of Canada were going to keep key overnight rates because of the inflation, and if Mark Carney, Bank of Canada’s governor forced to move interest rates before the US (and if done will most likely stiffen Canada’s economic recovery overall). Interest rates do need to rise although inflation pressures down the road of a year or two can be questionable. But actually, the inflation of prices might’ve come from last year’s price drop because gas prices were surely lower last year than it is this year. So the inflation prices had more to do with the past than with the future. In the meantime, the central bank waits for the interest rates as current agreement with the federal government expires next year and for recovery in the economy.

Connections:

The main connection between the article and the text is the monetary policy and the bank rate. The monetary policy is referred to “action taken by the Bank of Canada to alter the money supply, and ultimately economic conditions”. So in the article it’s stating that Canada’s money supply has been growing very much larger than expected because of the inflation in prices overall. People have to spend money more on the increase of gas and even the increase in new car prices leading them to borrow more money from the Bank of Canada. So they think that the only way to control the money being borrowed is to put interest rates up so the spending would be changed more into saving.

Reflection:

I think that the monetary policy shouldn’t be changed suddenly and significantly because it will be a shock to consumers. Especially since the inflations have been sudden as well, the Bank of Canada should take precaution in the changes they do want to make. I’m going to go with the title of the new article and say that the “monetary policy should be based on inflation trends and not blips” because if the inflations happen this time where is it to say that it’ll happen again? And if it does happen again then it might be a better time to change to monetary policy then and not now since they’d know which possible change would be the best for the economy.