Monetary policy, via the central bank (Bank
of Canada), basically uses
market forces to bring about price stability, induce high employment,
stabilize
financial markets and institutions, and to grow the economy (Hubbard,
et al.,
2015). The two tools available to the
central bank are to manage the money supply and the rate of inflation.
Both of these tools indirectly affect the
main drivers of an economy – firms and households. Because monetary
policy comes from the
central bank, and not directly from the government, the public may be
confused
as to why a governing council of a ‘bank’ (and specifically the
Governor),
rather than the elected government, gets to ‘adjust’ the inflation rate
– an
important factor in the price of goods and services over time.
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