As a manager of a firm, you are concerned about a potential increase in interest rates, which would reduce the demand for your firms product. Assume that the Bank of Canada is scheduled to announce its monetary policy report in one week. In the Banks previous monetary policy report, it announced an increase in its policy interest rate. Over the last six months, economic growth has been high, but inflation has also been high.

a. Given the situation, is the Bank of Canada likely to adjust monetary policy? If so, how?

b. How will this monetary policy affect your firms future performance? Could it affect

your firms plans for future expansion?

c. Recently, the Bank of Canada has allowed the money supply to expand beyond its long-

term target range. Does this affect your expectation of what the Bank of Canada will

decide at its upcoming meeting?

d. Suppose that the Bank of Canada has just learned that the Treasury will need to borrow

a larger amount of funds than originally expected. Explain how this information may

affect the degree to which the Bank of Canada changes the monetary policy.

e. Would it be possible that the Bank of Canadas monetary policy might be ineffective? If so, which circumstances might cause a stimulative/restrictive monetary policy to be

ineffective?