Question

14. On March 13th, 2020 the Bank of Canada announced a 0.5% reduction in its trend-setting overnight lending rate from 1.25% to 0.75%. Is this monetary policy or fiscal policy and what is the Bank of Canada trying to do regarding the Canadian economy? (4 marks) 15. As of June 9th, the Government of Canada has announced a massive $146-billion aid package to help Canadians and businesses cope with the global COVID-19 pandemic. Is this monetary policy or fiscal policy and what is the Government of Canada trying to do regarding the economy? (4 marks)

Answer 1

Monetary policy is the policy used by the Monetary authority or central bank of the country.

Fiscal policy is the the policy used by the government of the country.

Question 14

Overnight rate is the rate at which financial institution charge from each other on borrowings.

If Bank of Canada(central bank) announces a reduction in overnight rate it is considered as the Monetary policy. This reduction in overnight rate implies that now bank can borrow from other bank at a lower rate which means that it can provide loan to public at lower interest rate. This will cause increase in money supply in the economy to boost the economic condition.

Question 15

A package introduced by the Government of Canada is considered as the fiscal policy.

The Government of Canada tries to increase the flow of transaction in the economy. Due to COVID 19 situation, the unemployment is increasing which means uncertainity cause people to reduce their consumption but through this package government wants that Expenditure in the economy should increase which give boost to the economy.