Read the remarks given by Tiff Macklem, Governor of the Bank of Canada, on June 22: “Monetary

policy in the context of COVID-19” (Bank of Canada, June 22, 2020). You can find it on Avenue to

Learn.

2. Answer the following questions in writing.

a. Mr. Macklem describes several ways in which COVID-19 has affected the economy and has

made it more complicated for the Bank of Canada (BoC) to implement their inflation

targeting monetary policy framework. Summarize the different complications that the BoC is

facing.

b. Mr. Macklem also talks about the different ways that the BoC adjusted their policies in

response to COVID-19. One major goal of the BoC was to make sure “that credit would

continue to flow”. Describe the different policy tools that the BoC used to maintain access

to credit.

c. One of the first steps that the BoC took to combat the crisis was to lower their policy

interest rate to the lowest possible level, 0.25 percent, to boost consumer confidence and

economic activity. Using our model of Chapter 9 (“Central Banking and the Money Supply”),

argue how a lowering of the interest rate charged on Central Bank lending helps to boost

economic activity.