Finance committee  No. A year ago we were looking at our productivity assumption moving up from 1.5% to 1.75%. We made that adjustment in our forecast a year ago. What we've discovered over the past year is that maybe we were a bit too optimistic, so we've moved back to 1.5% for the period through to 2008.

Finance committee  No, for us the issue is balance, the fiscal balance. Indeed last year, because it turned out that we had higher nominal income growth than we had expected, it was important that the government actually ran a bit larger surplus. That was unintended, and our job at the bank and the area in which we have to cooperate very closely with the governments--not just the Government of Canada but governments in Canada--is to have an understanding on the fiscal balance and what we're doing on our side.

Finance committee  Well, capacity here is not a kind of physical limit so much as an economic limit. Basically, capacity is the point at which, essentially, demand is outstripping supply enough that we're getting an upward movement in prices. That's essentially where we are; there's still a little bit of upward movement in prices.

Finance committee  No, no, goods and services.

Finance committee  Well, look, there's always a structure--

Finance committee  There's always a structure out there, and not every industry will be at capacity. Some will be over capacity, in the sense that they're producing inefficiently because they're having to use either machinery that's outdated or labour that hasn't fully got the skills, or whatever.

Finance committee  —so much a physical concept.

Finance committee  No, it isn't, and that makes it very difficult.

Finance committee  In the middle term, the appreciation of the dollar slows down the rise in domestic prices, which helps us to deal with the situation. This means that we could loosen our monetary policy during periods of appreciation and tighten it up during depreciation periods. Half a century of experience has taught us that a floating dollar is the best way to facilitate the adjustment of the economy.

Finance committee  Since 2003, the gap between interest rates in Canada and the United States has diminished. In the beginning, there was a gap of more than one percentage point. We had a higher rate than that of the United States, but as of now, it is lower or just about the same. Thus, we can say that there is an interaction between monetary policy and exchange rates.

Finance committee  I'll be very quick here. The answer is yes, we do expect inflation to be below our target over the next period of time, for reasons we explained right at the beginning. We think we're on track to come back to about 2% nationally. That means the rate of inflation is a little higher in the two western provinces, a little lower in most of the rest of the country, but on average it is 2%.

Finance committee  I'm sorry, I didn't--

Finance committee  As I said earlier, in periods when revenues are a little stronger than anticipated, I think it's extraordinarily important to use that opportunity to pay down debt. That's how the system is supposed to work. Indeed the accounting rules mean that if you get more revenue, you don't spend it; you have to pay down debt.

Finance committee  In the medium term, productivity is the biggest challenge, because after 2011-2012, there will be a period of decline in labour. This is why productivity is extremely important. However, in the short term, we try to stick to our inflation target and we take the evolution of productivity into account for the projected period.

Finance committee  Well, if I knew all the answers to that, I think I would be either a hero or I'd be rich--one or the other. Sorry, we don't know all the answers. This is very hard work as you plow through it. When we appeared a year ago, we thought we were getting back on track to a long-term productivity gain of about 1.75% per year.