Canadian economy

1-Explain what the money multiplier is and its relevance to the government when it decides to increase the amount of currency (coins and notes) in


2-Compare the overnight interest rate to the target inflation rate?

3-Suppose there is a sudden increase in global demand for Canada’s raw materials. Answer the following questions in relation to Canada.

a. If the Canadian economy is initially at potential GDP, illustrate and explain the short-run effect of the shock on equilibrium national income and the

price level.

b. Describe how the economy adjusts automatically to the shock in the long-run.

c. Why would the central bank wish to offset the effect of this initial shock on the Canadian economy?

Sample Solution