Question

For each of the following, indicate whether the intervention is a functio of monetary policy (MP),...

For each of the following, indicate whether the intervention is a functio of monetary policy (MP), fiscal policy (FP) or the Bank of Canada acting as a fiscal agent (FA)

1. the bank rate increases -----, 2. The capital gains tax is reduced----, 3 A of Canada bond issue is redemed at maturity------, 4 SPRAs are used to reduce interest rate pressure-----.

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Answer #1

1) Bank rate increases - Monetary policy

Explanation : - Bank rate increase is an contractionary monetary policy.

2) The capital gains tax is reduced : - Fiscal policy

Explanation : - Fiscal policies affect asset prices via the tax/subsidy regime, discretionary policies and via the availability of government bailouts.

3) Fiscal agent

Explanation : - The duties of the fiscal agent include the delivery of the bonds, facilitating payment, publishing redemption notices, and the replacement of bonds.

4) Monetary policy

Explanation : - Special Purchase and Resale Agreements (SPRAs), is a tool to reduce undesired upward pressure on the overnight interest rate.

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