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The bank of Canada is central or national bank. Like in Canada, almost all countries worldwide have made sure that there is an establishment of central bank to help in dealing with monetary policy. Central bank does not help in managing the financial part of the economy (Bank of Canada 96, ).
The bank of Canada has several functions; issuing banking notes, implementing monetary policy, playing the role of a fiscal agent of the Government of Canada, and offering advice to the financial institutions in Canada.
Economy is composed of many consumers and producers who interact on a daily basis. They interact to determine which goods have to be produced, which producer is to supply goods, which consumer is to take commodities home, and what prices are to be paid for the goods provided (Wilson, Thomas , and Peter 135, 1993).
Governments in countries worldwide intervene in the microeconomics in order for them to improve the performance of their economy at large. There are two sections of the microeconomic policy that include fiscal and monetary policy. They both affect the economy of Canada.
Fiscal policy in Canada
Fiscal policy is a collection of decisions made by the government, and they affect taxation, spending, and borrowing.
There is no way governments can lack this policy since they are able to raise revenue and spend it purchasing goods and services. There are a number of dimensions of fiscal policy of a government particularly the federal level (Soucy, Jean, and Marion 231, 2000).
Monetary policy in Canada
This is a collection of decisions made by the government on the quantity of money in circulation, in the economy. This collection is through the government’s central bank. The monetary policy in Canada is conducted by the bank of Canada.
There is only one monetary policy in Canada, “the instrument policy of the Bank of Canada is the set target for the overnight interest rate” (Revisiting the case for flexible exchange rates 7).
The bank is not in a position to set spending and taxation priorities. The changes in the overnight interest rate highly depend on the effect of monetary value to the economy. For the last two years, the central bank of Canada has been independently influencing the interest rates and the quantity of cash.
High inflation is demanding to the economy and costly to the Canadians. Also, the government has adopted inflation control and taken it as their main policy objective. The government objective is to participate in the Canadian economy that is successful and ensure the well-being of the people of Canada.
The government has been encouraging central banks in Canada to reduce unemployment. This caused a rise in the amount of income earned hence, higher standards of living of Canadians (Price adjustment and monetary policy 23).
In short, the Canadian government has its aim at maintaining economy with low inflation and a stable development. Environments with a stable inflation have individuals and firms that are able to spend, save, and invest.
Imports and exports
These are elements that really affect the economy of Canada. Canada has been trading with the U.S. for a long period of time. Canada has been importing some commodities like machinery. This is an issue that also contributing to lowering the economy of Canada.
However, economy of Canada has been among the economies of the world. This is a clear indication that its government has helped in reducing the rate of importing in order to raise its economy including the living standards of the citizens for the last two years.
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Price adjustment and monetary policy: proceedings of a conference held by the Bank of Canada.. Ottawa, Ont.: Bank of Canada, 2003. Print.
Revisiting the case for flexible exchange rates: proceedings of a conference held by Bank of Canada, November 2000. Ottawa, Ont.: Bank of Canada, 2001. Print.
Soucy, Jean, and Marion Wrobel. Fiscal policy in Canada, the changing role of the federal and provincial governments. Ottawa: Library of Parliament, Research Branch, 2000. Print.
Wilson, Thomas A., and D. Peter Dungan. Fiscal policy in Canada: an appraisal. Toronto: Canadian Tax Foundation, 1993. Print.