The bank of Canada is increasing interest rates to reduce canada's high inflation rate to the BANK of Canada's target of 2%. Use the keynesian model to explain the theory behind Bank kf Canada's policy. Use graphs.

The bank of Canada is increasing interest rates to reduce canada's high inflation rate to the BANK of Canada's target of 2%. Use the keynesian model to explain the theory behind Bank kf Canada's policy. Use graphs.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter27: Issues In Macroeconomic Theory And Policy

Section: Chapter Questions

Problem 5P

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Concept explainers

Inflation and Purchasing Power Theory

In economic terms, Inflation refers to the increase in the costs of various commodities which are used in daily lifestyle like food, clothes, transport, etc. over a specific time. It may lead to a fall in the purchasing power of the people and also affects the exchange rate of the currency because of the price increase. As the purchasing power falls the unit of the currency in the economy falls. When the prices of the commodities are decreased, then the purchasing power of the consumers will rise, then it will lead to deflation and changes the currency of the base economy to that of the foreign economy which will lead to change in exchange rates.

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