Monetary Policy

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Date Submitted: 11/18/2012 09:53 AM

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Monetary Policy influences Canadian economic behaviour by controlling financial markets and credit conditions. Government measures are controlled and it is the responsibility of the Bank Of Canada, a federal crown with the ability to alter Canadian money supply. The BOC is in charge of coin, currency and chequeing deposits in nationwide chartered banks, however they do not have control of the money supply directly because of the private banking system. Strong links between the Federal Reserve and Bank of Canada, result in major US-Canadian financial, economic and government impacts. Unlike fiscal policy, that refers to taxation, government spending, and borrowing; monetary policy refers to expansionary and contractionary administration. For the last decade the U.S economy has been weak in general. The Federal Reserve system is supposed to stabilize and expand the American financial system but has failed time and time again. Since its formation, there has been a Great Depression, continual recessions in following years; 1953-1981, stock market crash in 1981, dot-com crash of 2001, and the recent 2007-present house market crises. A poor US economy impacts Canada’s economy negatively because of its influence on the Canadian market.

The Federal Reserve is the central bank for the United States of America. Prior to the creation of the Federal Reserve, the United States economy frequently saw bank failures and credit scarcity at which point the government intervened to create the central banking system. On December 23 1913, the United States government enacted to create the Federal Reserve banking System into law. The purpose for this law was to have a central bank, which will provide a flexible, safer, and stable financial system. As stated in its mandate, the Federal Reserve is responsible for America’s monetary policy, supervise and regulate financial institutions, maintaining stability and lowering systemic risk that may arise, and providing financial services to...