Question

Answer the following true, false, or uncertain with an explanation motivating your answer (you may use graphs and math to support your answer).

a. The Bank of Canada has complete control over the size of the money supply in Canada.

b. Fiscal policy has a relatively long inside lag, but short outside lag. In contrast, monetary policy has a relatively short inside lag but long outside lag. This is an argument for passive policy.

Answer 1

False

Bank of Canada does not control the money supply directly as it has no control over the deposits that arise in the private banking sector.

True

Fiscal policy has a long inside lag as fiscal policy refers to taxation and government spending and changes in these structures require immense time as tax structure cannot be changed over a day it needs to go through the whole parliamentary process. But once implemented it is effective soon . Whereas monetary policy has a short inside lag as its easy to recognize and decide but the implementation takes time.