Tuesday, June 9, 2009
Friday, April 17, 2009
Chapter 8 - Stabilization Policy
http://www.cbc.ca/money/story/2009/04/21/bank-canada-rate.html
Summary:
The Bank of Canada promises that the interest rate will stay the same until the middle of 2010. They decreased the overnight rate by a quarter of a percent so; the interest rate right now is 0.25%. Depending on the inflation rate, this will remain until the middle of 2010. The Bank of Canada is hoping that it will help stimulate the economy. No other bank in the world has done anything like this before. The recession in Canada is actually deeper than anticipated. In 2009 they believe that Canada’s economy will contract 3.0%. However, they expect an economic growth of 2.5% in 2010. Due to this promise from the Bank of Canada, chartered banks have been reducing their prime interest rates.
Connection
The connection between this article and text book is monetary policies. Money supply is a stabilization tool. Usually when interest rates increase or decrease, it will affect businesses and consumers. However, monetary policies have a limited effect. Sometimes the interest rate is inelastic, which means consumers do not respond to the changes in interest rates. This is not what we are seeing right now. The Bank of Canada has lower their interest rate even more, hoping it will get the economy moving again. They even assured the chartered banks that this rate will stay the same until the middle of 2010, depending on inflation rates. Therefore, the chartered banks of lowered their prime rate to 2.25%. Which means that the interest rates do not have an inelasitc demand right now.
Reflection:
Canada’s recession is deeper than it was anticipated. This made the Bank of Canada to do something that no other central banks do. They made a promise that the interest rate will stay the same. It certainly has an effect on chartered banks since they are already lowering their prime rates. Since interest rates are lowering, businesses should be investing again. Consumer spending should also increase thus more money will go into the economy. However, the question is when will this happen? How long would it take for this monetary policy to have an effect on the economy? Does the central bank need to introduce another monetary policy to get the economy moving again?
Summary:
The Bank of Canada promises that the interest rate will stay the same until the middle of 2010. They decreased the overnight rate by a quarter of a percent so; the interest rate right now is 0.25%. Depending on the inflation rate, this will remain until the middle of 2010. The Bank of Canada is hoping that it will help stimulate the economy. No other bank in the world has done anything like this before. The recession in Canada is actually deeper than anticipated. In 2009 they believe that Canada’s economy will contract 3.0%. However, they expect an economic growth of 2.5% in 2010. Due to this promise from the Bank of Canada, chartered banks have been reducing their prime interest rates.
Connection
The connection between this article and text book is monetary policies. Money supply is a stabilization tool. Usually when interest rates increase or decrease, it will affect businesses and consumers. However, monetary policies have a limited effect. Sometimes the interest rate is inelastic, which means consumers do not respond to the changes in interest rates. This is not what we are seeing right now. The Bank of Canada has lower their interest rate even more, hoping it will get the economy moving again. They even assured the chartered banks that this rate will stay the same until the middle of 2010, depending on inflation rates. Therefore, the chartered banks of lowered their prime rate to 2.25%. Which means that the interest rates do not have an inelasitc demand right now.
Reflection:
Canada’s recession is deeper than it was anticipated. This made the Bank of Canada to do something that no other central banks do. They made a promise that the interest rate will stay the same. It certainly has an effect on chartered banks since they are already lowering their prime rates. Since interest rates are lowering, businesses should be investing again. Consumer spending should also increase thus more money will go into the economy. However, the question is when will this happen? How long would it take for this monetary policy to have an effect on the economy? Does the central bank need to introduce another monetary policy to get the economy moving again?
Tuesday, March 31, 2009
Chapter 7 - Money and the Canada Banking System
http://www.cbc.ca/canada/story/2009/03/01/bank-rate.html
Summary:
This article is about Bank of Canada’s cuts in their lending rate to charted banks. This is the seventh time Canada’s central bank has reduced their rate since last February. Now the short term lending rate is a barely noticeable 0.5%. In order to free up credit the bank has also inserted $40 billion in cash into the economy through assets swaps. Even with this and the low interest rates the economy persists to decline. Usually the charter banks reduce their prime rate when the Bank of Canada reduces theirs, however this is not happening. One of the reasons is the global credit crunch. Canadian banks are avoding risky loans during this recession thus prime rates are not lowering even when the bank rate is.
Connection:
Summary:
This article is about Bank of Canada’s cuts in their lending rate to charted banks. This is the seventh time Canada’s central bank has reduced their rate since last February. Now the short term lending rate is a barely noticeable 0.5%. In order to free up credit the bank has also inserted $40 billion in cash into the economy through assets swaps. Even with this and the low interest rates the economy persists to decline. Usually the charter banks reduce their prime rate when the Bank of Canada reduces theirs, however this is not happening. One of the reasons is the global credit crunch. Canadian banks are avoding risky loans during this recession thus prime rates are not lowering even when the bank rate is.
Connection:
The connection between this article and the textbook is bank rates. These rates are the amount of interest the Bank of Canada charges chartered banks that borrow money from them. This usually affects the prime lending rates which is the rate chartered banks charges its creditworthy customers. When the bank rates decrease, the prime rates should also decrease. However, this is not happening right now in Canada. The Bank of Canada has lowered their interest rate to a mere 0.5%. A decline in prime rates should be happening but it is not. Chartered banks are still worried about lending money to each other, firms and consumers in a time like this. Canada’s central bank is trying to lower the interest rates hoping the chartered banks will do the same to get consumers to spend again. When the interest rates are lower customers are more willing to borrow money and spend it. Their plan will not work that effectively for Chartered banks are not willing to decrease thier prime rates.
Reflection:
The Bank of Canada is trying to stimulate the economy by reducing their interest rates for chartered banks. In the past when these rates decline the prime rates usually follow. However, this is not what we are seeing. The chartered banks are reluctent to lend out thier money or reduce interest rate for they are worried and afraid. Even though, Canada's central is bank is trying to get people spending again by lowering their interest rate. Their plan will not work since the interest rates are still high. Consumers will just keep saving their money. Also the lowering the bank rates will decrease demand-deficient unemployment. This means if interest rates are lower, people will spend and demand more and manufacturers will need to hire more employees to produce goods. All of this can't happen because the banks are afraid. How can economic spending increase when chartered banks are reluctent to lower interest rate to help consumers to spend again ?
Sunday, March 8, 2009
Chapter 6 - Determination of National Income
http://www.ctv.ca/servlet/ArticleNews/story/CTVNews/20090227/shrinking_useconomy_090227/20090227/http://www.ctv.ca/servlet/ArticleNews/story/CTVNews/20090227/shrinking_useconomy_090227/20090227/
Summary :
At the end of 2008, United State’s GDP contracted at 6.2%. This is the fastest pace the economy decreased in 26 years. A majority of this downgrade is due to consumer spending, which makes up around two-thirds of economic activity in the United States. People stopped shopping for cars, furniture, appliances, clothes and other goods. Due to this the businesses also reduced in spending and inventories. Economists predict that consumers and businesses will continue to cut down on spending. This contributed to the rocky start to America’s economy this year. Vanishing jobs, sinking house market and investments also contributed to consumer’s cut back. Companies are slashing payrolls and production for lack of consumer spending. Right now, President Obama is planning to use a $787 billion recovery package to jump start America’s economy.
Connection:
The connection between this article and the text book is the change in GDP due to household savings and investment. In the United States, households are saving their money and reluctant to invest due to the dwindling stock market. When households start saving their money, less cash flows into the business sector. In reaction, businesses lessen production of goods and starts forwarding less money to households in form of wages, interest and rent. This is what the US companies are doing; they are reducing their spending, laying off workers and slashing payrolls. All of this reduces the flow of money in the circular flow resulting in a lower GDP. In this case United State’s GDP contracted 6.2% mostly caused by the lack of consumer spending and increase household savings.
Reflection:
The United States is in a recession that is almost as bad as the 1980’s deep recession. However, people are still not spending money instead they are saving which will not help the economy. Many people are keeping their money for they are afraid they will loose their jobs. If consumers don’t purchase or invest, the money will not flow into the business sector. Which results in the lay offs and reduction in pay rolls by businesses. Even though President Barack Obama is using a recovery package to stimulate the economy, it won’t be enough. People will just save the extra money they have and the recession will just worsen. Therefore, I think that people should start using their money to stimulate the economy. However, the question is how will economists convince people that spending will actually help the economy?
Summary :
At the end of 2008, United State’s GDP contracted at 6.2%. This is the fastest pace the economy decreased in 26 years. A majority of this downgrade is due to consumer spending, which makes up around two-thirds of economic activity in the United States. People stopped shopping for cars, furniture, appliances, clothes and other goods. Due to this the businesses also reduced in spending and inventories. Economists predict that consumers and businesses will continue to cut down on spending. This contributed to the rocky start to America’s economy this year. Vanishing jobs, sinking house market and investments also contributed to consumer’s cut back. Companies are slashing payrolls and production for lack of consumer spending. Right now, President Obama is planning to use a $787 billion recovery package to jump start America’s economy.
Connection:
The connection between this article and the text book is the change in GDP due to household savings and investment. In the United States, households are saving their money and reluctant to invest due to the dwindling stock market. When households start saving their money, less cash flows into the business sector. In reaction, businesses lessen production of goods and starts forwarding less money to households in form of wages, interest and rent. This is what the US companies are doing; they are reducing their spending, laying off workers and slashing payrolls. All of this reduces the flow of money in the circular flow resulting in a lower GDP. In this case United State’s GDP contracted 6.2% mostly caused by the lack of consumer spending and increase household savings.
Reflection:
The United States is in a recession that is almost as bad as the 1980’s deep recession. However, people are still not spending money instead they are saving which will not help the economy. Many people are keeping their money for they are afraid they will loose their jobs. If consumers don’t purchase or invest, the money will not flow into the business sector. Which results in the lay offs and reduction in pay rolls by businesses. Even though President Barack Obama is using a recovery package to stimulate the economy, it won’t be enough. People will just save the extra money they have and the recession will just worsen. Therefore, I think that people should start using their money to stimulate the economy. However, the question is how will economists convince people that spending will actually help the economy?
Wednesday, February 18, 2009
Chapter 5 - Economic Indicators
http://www.cbc.ca/canada/calgary/story/2009/02/06/januaryjobs.html
Summary:
The world economy is still staggering in recession and job losses are continuing to increase in Canada. On Friday, Statistics Canada said that the unemployment rate in January exceeded anything seen during previous economic turn downs in the 1980s and 1990s. In January, the unemployment rate has gone up to 7.2 percent with 129,000 job losses. Most of these jobs were full time positions. Countless economists describes this situation as “horrifying “and “shockingly poor”, since many of them only expected 40,000 job cuts. Many of the job losses were lost in the manufacturing sector. Within this sector, most job cuts were in the motor vehicle manufacturing. The production of furniture; computers and electronic appliances; components; and clothing also decreased in production which led to job losses.
Connection:
The connection between the article and the textbook is demand-deficient unemployment. Usually, when a product is selling well the companies will hire more workers. However, this is not happening right now in Canada. Due to the recession in the world’s economy, demands for numerous of products has declined. People are reluctant to spend their money thus it reduces sales for businesses. Since products aren’t selling well, employers do not need to hire workers. This results in unemployment. Job losses in January were mainly concentrated in the manufacturing sector. People’s demand in cars, clothing, and electronics are declining so companies will not need to produce as many goods. Therefore, employers don’t hire new employees and lay off workers because the consumers demand for their product is low.
Reflection:
The number of job losses in January has shocked many economists. This is caused by the decline in demand of goods by the consumer. Since the world's economy is in recession, everybody is finding ways to save as much money as they can. The article mentioned that the motor vehicle manufacturing sector is suffering significantly. Many employers from this industry are cutting jobs and salaries for people are not buying cars. I wonder how will the government intervene to stop this plunge in unemployment. I also question how long it will take for the world's economy to be out of this recession. Will it be as bad as the 1980s ? There are so many questions but the answers to those are all uncertain.
Summary:
The world economy is still staggering in recession and job losses are continuing to increase in Canada. On Friday, Statistics Canada said that the unemployment rate in January exceeded anything seen during previous economic turn downs in the 1980s and 1990s. In January, the unemployment rate has gone up to 7.2 percent with 129,000 job losses. Most of these jobs were full time positions. Countless economists describes this situation as “horrifying “and “shockingly poor”, since many of them only expected 40,000 job cuts. Many of the job losses were lost in the manufacturing sector. Within this sector, most job cuts were in the motor vehicle manufacturing. The production of furniture; computers and electronic appliances; components; and clothing also decreased in production which led to job losses.
Connection:
The connection between the article and the textbook is demand-deficient unemployment. Usually, when a product is selling well the companies will hire more workers. However, this is not happening right now in Canada. Due to the recession in the world’s economy, demands for numerous of products has declined. People are reluctant to spend their money thus it reduces sales for businesses. Since products aren’t selling well, employers do not need to hire workers. This results in unemployment. Job losses in January were mainly concentrated in the manufacturing sector. People’s demand in cars, clothing, and electronics are declining so companies will not need to produce as many goods. Therefore, employers don’t hire new employees and lay off workers because the consumers demand for their product is low.
Reflection:
The number of job losses in January has shocked many economists. This is caused by the decline in demand of goods by the consumer. Since the world's economy is in recession, everybody is finding ways to save as much money as they can. The article mentioned that the motor vehicle manufacturing sector is suffering significantly. Many employers from this industry are cutting jobs and salaries for people are not buying cars. I wonder how will the government intervene to stop this plunge in unemployment. I also question how long it will take for the world's economy to be out of this recession. Will it be as bad as the 1980s ? There are so many questions but the answers to those are all uncertain.
Friday, January 23, 2009
Chapter 4 - Government in Canada
http://www.cbc.ca/canada/toronto/story/2008/11/03/flaherty-ministers.html
Summary:
Ontario is competent for the federal government’s equalization program. The federal Finance Minister Jim Flaherty said that this year the province will receive $324 million in transfer payments. This is the first payment the province obtains from this program where the wealthier provinces give funds to poorer provinces so they can offer basic government services. Ontario is slowly becoming a have-not province due to the struggling industrialized division. This is caused by the diminishing demand in the United States. Flaherty says that the province will be in this state “for some time to come”. Furthermore, Flaherty believes that the government should increase more than just fifteen percent in equalization payments each year. If not, the government might face managing a sidetrack and bankrupting equalization program.
Connections:
The connection between the textbook and this article is equalization payments in Canada. There are a number of provinces in Canada that have a good tax base. British Columbia, Ontario, and Alberta supposedly have high per-capita profits and excellent industrial base. However, over the past years Ontario’s per-capita tax revenue has declined. This makes Ontario a have-not province just like Quebec and the Maritime Provinces whom already receives equalization payments. The reason behind this payment is to ensure that provinces can offer a practical level of public services without increasing tax rates to an extremely high level. Due to the deteriorating American economy it has effected Ontario’s industrial sector causing the province to join this program for the first time.
Reflection:
Ontario was the only province that has not received equalization payments in the past. However, due to the America’s economy it caused Ontario to join this program. This shows us what a big impact the United States have on the Canadian economy. I think that $324 million dollars will not be enough to stimulate Ontario’s financial system. America will not increase their demands anytime soon so, the government will have to find other ways to stimulate the economy and prevent it from declining further. It will be interesting to see what the government does to remove Ontario from the “have-not” group. I also wonder how much longer until the industrial sector of Ontario is strong again.
Summary:
Ontario is competent for the federal government’s equalization program. The federal Finance Minister Jim Flaherty said that this year the province will receive $324 million in transfer payments. This is the first payment the province obtains from this program where the wealthier provinces give funds to poorer provinces so they can offer basic government services. Ontario is slowly becoming a have-not province due to the struggling industrialized division. This is caused by the diminishing demand in the United States. Flaherty says that the province will be in this state “for some time to come”. Furthermore, Flaherty believes that the government should increase more than just fifteen percent in equalization payments each year. If not, the government might face managing a sidetrack and bankrupting equalization program.
Connections:
The connection between the textbook and this article is equalization payments in Canada. There are a number of provinces in Canada that have a good tax base. British Columbia, Ontario, and Alberta supposedly have high per-capita profits and excellent industrial base. However, over the past years Ontario’s per-capita tax revenue has declined. This makes Ontario a have-not province just like Quebec and the Maritime Provinces whom already receives equalization payments. The reason behind this payment is to ensure that provinces can offer a practical level of public services without increasing tax rates to an extremely high level. Due to the deteriorating American economy it has effected Ontario’s industrial sector causing the province to join this program for the first time.
Reflection:
Ontario was the only province that has not received equalization payments in the past. However, due to the America’s economy it caused Ontario to join this program. This shows us what a big impact the United States have on the Canadian economy. I think that $324 million dollars will not be enough to stimulate Ontario’s financial system. America will not increase their demands anytime soon so, the government will have to find other ways to stimulate the economy and prevent it from declining further. It will be interesting to see what the government does to remove Ontario from the “have-not” group. I also wonder how much longer until the industrial sector of Ontario is strong again.
Monday, November 24, 2008
Chapter 3 - Role of Government in Economy
http://www.cbc.ca/money/story/2009/01/05/alternativebudget.html
Summary:
In Ottawa, the Canadian Centre for Policy Alternatives has made public the annual Alternative Federal Budget. It suggests that the government should increase their spending by $32.9 billion dollars or 2.9% GDP. The centre believes that it will help stimulate the economy by producing 407, 000 jobs and give a three percent increase to the financial system. If the centre had admittance to Ottawa’s funds, the first thing they would do is spend $14.7 billion on municipal infrastructure, child care, inexpensive housing and post-secondary education. They also believe that Canada’s employment insurance program is flawed. Therefore, the government should spend an additional $3.4 billion to increase benefits and cover 60 percent of insured income. A further $9 billion would be used to decrease poverty and raise income for seniors, children and the working poor. The centre also suggest that $5.8 billion for training and education. However, in the Alternative Federal Budget, there were no suggestions on tax cuts. They believe that government expenses provide more stimulus than tax cuts.
Connections:
Economic fluctuations are what characterizes the market system. There could be a time of high rate of employment and rising prices. Also there will be times of high unemployment and slow economic activities, a state that the world economy is in right now. Both the textbook and article goes on to explain how the government can intervene to help stabilize the free-market system. It suggests that the government should spend more money on programs for the public. By spending money the government could create more jobs which will decrease the unemployment rate. If people have a job they will eventually start spending money which will slowly increase economic growth. The textbook also suggests that the government should cut taxes. If they do it will increase the amount of disposable incomes and people will spend more. However, in the article they believe that tax cuts will not be as effective as government expenses.
Summary:
In Ottawa, the Canadian Centre for Policy Alternatives has made public the annual Alternative Federal Budget. It suggests that the government should increase their spending by $32.9 billion dollars or 2.9% GDP. The centre believes that it will help stimulate the economy by producing 407, 000 jobs and give a three percent increase to the financial system. If the centre had admittance to Ottawa’s funds, the first thing they would do is spend $14.7 billion on municipal infrastructure, child care, inexpensive housing and post-secondary education. They also believe that Canada’s employment insurance program is flawed. Therefore, the government should spend an additional $3.4 billion to increase benefits and cover 60 percent of insured income. A further $9 billion would be used to decrease poverty and raise income for seniors, children and the working poor. The centre also suggest that $5.8 billion for training and education. However, in the Alternative Federal Budget, there were no suggestions on tax cuts. They believe that government expenses provide more stimulus than tax cuts.
Connections:
Economic fluctuations are what characterizes the market system. There could be a time of high rate of employment and rising prices. Also there will be times of high unemployment and slow economic activities, a state that the world economy is in right now. Both the textbook and article goes on to explain how the government can intervene to help stabilize the free-market system. It suggests that the government should spend more money on programs for the public. By spending money the government could create more jobs which will decrease the unemployment rate. If people have a job they will eventually start spending money which will slowly increase economic growth. The textbook also suggests that the government should cut taxes. If they do it will increase the amount of disposable incomes and people will spend more. However, in the article they believe that tax cuts will not be as effective as government expenses.
Reflection:
The plan that the Canadian Centre for Policy Alternatives made does not seem very effective. It only suggests to increase government spending on social programs and infrastructure. They believe that tax cuts will not be as effective and there is no point of including it in the plan to stimulate the economy. While the textbook suggests that government spending and tax cuts will be the more effective. That is because more disposable income will go into taxpayer's pockets. I wonder what will the government will do in the following years to stimulate Canada's economy. The United States is going into a deeper recession and that will definitely have an impact on Canada since most of our trades are with them. Will the government decide to stimulate the economy by government spending or with tax cuts and spending?
Subscribe to:
Posts (Atom)
