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.

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?

Chapter 2 - Supply and Demand

the article :http://www.canada.com/topics/news/story.html?id=fbbda0f0-d7a4-46f5-9725-26c667b5edff

Venezuela expects OPEC to cut supplies

Summary:

This article is regarding the supply and demand of oil. It discusses about how Opec, an organization that provides approximately one third of the world’s oil supply is expected to cut the amount of oil they bring in. The reason for this cut is to balance the supply and demand. Right now, the world economy is recessing which caused the demand of oil to decrease. Oil prices has also been affected due to this reason. Prices have plunged more than half from the price it was in July which was $ 150 a barrel. To maintain the oil revenues, the Venezuela's economy minister expects Opec to cut supplies. The Opec president has said it is likely to reduce about 1 million barrels per day from the quantity of oil they make available.

Connection:

The connection that I found between this article and the text is the concept of supply and demand. Fears of recession worldwide, has caused the demand of oil to decrease. The consumer’s income has declined due to this, so they don’t have extra money to spend on luxury items. When consumers don’t purchase a product as often and the suppliers keep producing at maximum rate it will cause the prices to drop. The prices only go up if there’s a high demand for and only a limited supply but oil demands are not high. Therefore to balance the supply and demand, Venezula’s economy minster is expecting Opec’s to cut their supplies. Cutting the amount of oil they provide will hopefully help maintain the oil price and prevent it from plunging even lower.

Reflection :

The housing crisis in the United States has caused the fears of worldwide recession. This effected the demand and supply of oil. Before the demand of oil was high and the oil providers were producing at maximum rate. This also caused the prices to increase. However, since there’s a worldwide recession, incomes of consumers has declined. This decline is causing demands of many items to decrease since people don’t have the extra money to spend. I think that it's a good idea that Opec is going to cut thier oil supply. If they keep producing more but no one is going to buy it, they're going to have a lot left. Hence, the price of oil would even go lower than now. I wonder if other companies and organization will try to balance supply and demand by reducing thier supplies.

Chapter 1 - Scarcity

The article: http://www.usatoday.com/travel/deals/inside/2008-09-17-capacity-cuts-effects_N.htm

Five Ways Airline Capacity Cuts Will Effect You by Jessica Labrencis

Summary

This article talks about how airlines are making “capacity cuts". This means the airlines are cutting the number of flights thus fewer seats and fuller planes. It goes on informing us of all the problems this would cause. A few of these problems are less comfort due to crowded planes and the chances of booking a flight last minute are slim. A point that surprises me is how the schedules for your flight could change to accommodate the full capacity on planes. The scarcity of frequent flier tickets is problem we would face. At the end of the article the author gives us a few tips on how to face these problems. The only way is to book your flight in advance even for the frequent fliers since those award tickets will get scarcer.

Connections

The relationship between this article and the concept in Chapter 1 is scarcity. Many airlines are cutting capacity from 5% - 16% making the numbers of flights and seats decrease. This cut is due to limited amount of resources in this case, jet fuel. The price of fuel shot up since it's not available in unlimited quantity. One day this non - renewable resource would be gone. This limitation required the airlines to make a decision on how to use their jet fuel. Therefore they limit the number of flights. By cutting down the number of flights, they're also making more money. Since seats are scarce, more people are willing to pay more money for it. As the demand increases, the price of an airline ticket will also increase.

Reflection

Over the years, many companies have made the decision to limit their products. A decision that was made due to limited resources. For example, renewing a tree takes about 25 years but the number of trees used is greater than the number of trees produced. Therefore, the government set laws to limit the amount of trees that could be cut down to produce products like paper. This article triggered numerous of questions in my mind. What would happen when all the reserves around the world run out of this resource? What will cars run on? How will the people around the world deal with this ? Many people are probably wondering about the same questions and hoping to find a solution to this problem.