http://www.ctv.ca/servlet/ArticleNews/story/CTVNews/20090420/battle_lines_090420/20090420?hub=Politics
Summary
As Canada has lost 300,000 jobs in the first three months of 2009, the federal Liberals were accusing the Conservative government of mismanaging the economy. Liberal Leader Michael Ignatieff emphasized that the Harper government’s stimulus programs is doing little to help reduce the number of job losses, which are “sweeping across the country”. However, the Conservatives responded by pointing out the Liberals will raise taxes to pay down the debt caused by the Conservative’s stimulus package. Both sides are attacking each other’s fiscal policies. The Conservative Government is spending billions of dollars to increase employment and improve economic conditions at the expense of increasing the public debt. On the other hand, the Liberals are hinting to raise taxes, which may lower employment, to eliminate the debt the Conservative government has recently caused.
Stabilization Policy
To get out of current economic recession, the Conservative government has imposed fiscal policies that increased government spending and cut back on certain taxes. The changes in fiscal policies can be referred to as economic stabilization programs where increased government spending can create jobs, therefore lowering levels of unemployment. A reduction of taxes can also increase the country’s GDP, leading to an increase in inflation. A decrease in government spending and an increase in taxes can lower the GDP resulting in higher unemployment, which is a plan the Liberals are considering to do. In this case, the current fiscal policy laid out by the Conservative government is classified as a discretionary fiscal policy, which aims at improving the economy through changing level of government spending and taxation. Since it is easier to gain political approval by having a fiscal policy that increase government spending and reduce taxes, the Conservative government implemented this policy and tried to paint the Liberals as the party that will raise taxes and reduce government spending—a fiscal policy that is unpopular with many Canadians. Discretionary fiscal policies are also known to have huge “inside” and “outside” time lags where effects of those policies can’t be measured until months after they are introduced. This is a major reason why thousands of Canadians are losing their jobs at the beginning of 2009, despite the government’s announcement of increased spending and decreased taxation.
Personal Reflection
Liberal Leader Michael ignatieff does have a very good reason to be attacking the Conservatives for mishandling the economy. Because of the recognition, decision, and outside time lags of the Conservatives’ discretionary fiscal policies, thousands of Canadians are experiencing unemployment across the country. Though increases in government spending and tax cuts may be the right thing to do, the policies have came too late to save the jobs of many Canadians. The Conservative government should have implemented automatic stabilizers months, even a year, before this recession, so those programs would be fully in place now. The government should have injected more money earlier in the employment insurance programs, so when Canadians loses their jobs they can quickly get some financial support, instead of waiting for weeks to get the money, which further slows down the economy.
Tuesday, April 21, 2009
Wednesday, April 1, 2009
Chapter Seven Economics Blog
http://www.thestar.com/Business/article/611246
Summary
On March 31, the Organization for Economic Cooperation and Development (OECD) urged the Canadian governments to do more and spend more to help stimulate the contracting economy. The international organization advocated the Bank of Canada to cut interest rates, increase the money supply, and increase income support for laid-off workers. The OCED also encouraged Canada to cut interest rates even lower than at the current rate of 0.5 per cent to boost spending. It strongly supports that governments, Canada in particular, needs to spend a lot more to get out of a recession. Finance Minister Jim Flaherty earlier did say he will do more if we need to do more, but will not do anything now because the stimulus package introduced in the government’s budget haven’t gone to Canadians yet.
Money and the Canadian Banking System
Two of the recommendations the OCED has put forward that relates to chapter seven are lowering the interest rates of the Bank of Canada and injecting more money supply in the economy. If the Bank of Canada further lowers their interest rates, then hopefully the chartered banks which borrow money from the Bank of Canada would pass the lowered interest rates to the consumers by lowering their lending rates. The will encourage spending, but most importantly will increase the demand for money. According to the demand-for-money curve, if interest rates drop there will be an increase in the quantity-of-money demanded. When more money is demanded from Canadians, the Bank of Canada might increase the nation’s supply of money and if the supply of money increases, the purchases of goods and services will also increase, as well. The increased purchasing power and spending will create more jobs and increase the value of goods, and ultimately increase the country’s GDP to help them get out of a recession. Cutting interest rates and increasing the money supply both helps Canadians to spend more to help the ailing economy.
Personal Reflection
Personally, I disagree with the OCED’s recommendation that the Bank of Canada should lower interest rates. The interest rate of the Bank of Canada is at 0.5 per cent now and given that the interest rates can’t go much lower. Since September 2008 the interest rate has dropped 2.5 per cent and made very little, if any, effect on consumer spending. However, the interest rates of the chartered banks in Canada can be lowered as the lending rates of those banks vary between 3-5 per cent. I do disagree with the OCED’s recommendation that Canada should boost the money supply because if they produce more money, that means the Bank of Canada will have more money to lend out to the chartered banks, ultimately the banks will have more money to lend out to consumers. This will force the interest rates of the banks to drop and consumers will loan more and spend more. Increased consumption will create more jobs and the economy will improve, that is why during the recession we should increase the production of money, so the banks will lend money out easier.
Summary
On March 31, the Organization for Economic Cooperation and Development (OECD) urged the Canadian governments to do more and spend more to help stimulate the contracting economy. The international organization advocated the Bank of Canada to cut interest rates, increase the money supply, and increase income support for laid-off workers. The OCED also encouraged Canada to cut interest rates even lower than at the current rate of 0.5 per cent to boost spending. It strongly supports that governments, Canada in particular, needs to spend a lot more to get out of a recession. Finance Minister Jim Flaherty earlier did say he will do more if we need to do more, but will not do anything now because the stimulus package introduced in the government’s budget haven’t gone to Canadians yet.
Money and the Canadian Banking System
Two of the recommendations the OCED has put forward that relates to chapter seven are lowering the interest rates of the Bank of Canada and injecting more money supply in the economy. If the Bank of Canada further lowers their interest rates, then hopefully the chartered banks which borrow money from the Bank of Canada would pass the lowered interest rates to the consumers by lowering their lending rates. The will encourage spending, but most importantly will increase the demand for money. According to the demand-for-money curve, if interest rates drop there will be an increase in the quantity-of-money demanded. When more money is demanded from Canadians, the Bank of Canada might increase the nation’s supply of money and if the supply of money increases, the purchases of goods and services will also increase, as well. The increased purchasing power and spending will create more jobs and increase the value of goods, and ultimately increase the country’s GDP to help them get out of a recession. Cutting interest rates and increasing the money supply both helps Canadians to spend more to help the ailing economy.
Personal Reflection
Personally, I disagree with the OCED’s recommendation that the Bank of Canada should lower interest rates. The interest rate of the Bank of Canada is at 0.5 per cent now and given that the interest rates can’t go much lower. Since September 2008 the interest rate has dropped 2.5 per cent and made very little, if any, effect on consumer spending. However, the interest rates of the chartered banks in Canada can be lowered as the lending rates of those banks vary between 3-5 per cent. I do disagree with the OCED’s recommendation that Canada should boost the money supply because if they produce more money, that means the Bank of Canada will have more money to lend out to the chartered banks, ultimately the banks will have more money to lend out to consumers. This will force the interest rates of the banks to drop and consumers will loan more and spend more. Increased consumption will create more jobs and the economy will improve, that is why during the recession we should increase the production of money, so the banks will lend money out easier.
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