http://www.economist.com/markets/indicators/displaystory.cfm?story_id=11090698
Within this economist article, an overview is given for Canada, Norway, and the euro area. The bank of Canada has lowered its bank rate to 3% from it 3.5% due to their expectations of an extended American slowdown of the economy which will in turn harm the Canadian exports and credit conditions and decrease spending. Canada also wants to increase their inflationary rate from 1.5% to 1-3% target by using the monetary policy. Next, Norway raised their interest rates from 5.25% to 5.5% because they are more concerned with their high inflationary rate rather than about a slowdown in the economy. Then, the manufacturing firms were less busy and have less activity due to the strong exchange rate which caused the euro to fall. As well consumer prices in Australia have increased by 4.2% which is above the 2 to 3 % target. The interest rate will rise and the aussie dollar will then rise above the $0.95 mark. Finally, the economist reported that the homes in America had fallen by 2% in March.
Within Chapter 7, we learned about the Bank of Canada, Monetary Policy, and the Money Multiplier. We learned that the Bank of Canada can manipulate the economy by changing the bank rate and the reserve ratio. I can now understand the reason why Canada wants to lower their bank rate from 3.5% - 3.0% is because they want to increase the money supply then increase spending to counteract the harm done by the American economy slowdown. To counteract the high inflationary rate, Norway raised their interest rates from 5.25% - 5.5% in order to slow down inflation. Next, we can see that the manufacturing firms are less busy and had less activity because of their strong exchange rates. This caused a decrease in demand and an increase supply which causes the euro to fall. We can also see that Australian consumer prices have increased due to inflation as well.
Overall, I believe that even if Bank of Canada increased decreased the bank rate, Canadians are more likely to spend the money within our neighbor’s economy rather than within the Canadian economy. Since prices are cheaper within the United States and the dollar value is almost equal now, consumers would much rather spend the money within the states. On the other hand, the increased money supply will enable consumers to be able to afford more within Canada. Also, I believe that Australia can lower their interest rates in order to decrease the inflationary rate as well.
