Economics Commentary: Macroeconomics Essay

Areas of Syllabus your remark relates to Section 4 MacroeconomicsHaving experienced contraction from Q4 08 to Q2 09, the Canadian economy grew 5% in the fourth make of 2009, beating predicted forecasts. This growth was precipitated by consumer and authorities spending, as well as a growing house market. There was as well growth recorded in exports, with sectors such as the automotive, energy and industrial figure into this. However, economists warn that for this growth to continue, issues such as unemployment and peevish aggregate demand must be addressed. pecuniary measures, meaning decisions made by the central government body c erstrning taxation and government spending, have already been taken by the Canadian government, in the plant of the fiscal stimulus bundle. This package has in it $12B in infrastructure spending, $7.8B meant to stimulate construction firms, $8.3 B for skills facts of life and retraining, and several tax credits ranging from the home forward moti on ($1350/family) to lowered EI and income tax rates. Fiscal policy for the most part strikes itself with creating conditions of full employment, price stability and real gross domestic product growth. Full employment, or an economic state where all told eligible people who want to work burn down find employment at the prevailing lease rate, is important in achieving a state of ut edgeost productivity in the economy.The current unemployment rate is 8.2%, in a higher place the generally accepted natural rate of unemployment. It has just fallen world-shatteringly, with a gain of 159,000 new jobs since June 2009. This whitethorn be attributed the decrease in morphological unemployment, a seen in Fig 1 through a shift from AD (l) to AD1 (l). There mismatch in skills offered by Canadian workers and those demanded by firms has decreased on the diagram, perhaps through training programs. On the another(prenominal) hand, an maturation in aggregate demand, caused by an increase i n the disposable income of families may have also caused the increase in demand for labour as firms expanded or rehired laid off personnel. hurt stability is also important for long term economic growth, because rampant inflation, meaning a poise and prolonged increase in the price train, is cognise to have several adverse effects. These include the plain costs caused by unsteady resource costs, and gold losing its role as a medium of value. As the government injects more stimuli into the economy, the risk of demand soak up inflation grows. Thus aggregate demand would bear because of growth in the notes supply, the price level would increase, as described by the short trace equation of exchange, M=P.This increase in the money supply is provided by the marge of Canada, and included as the Extraordinary Financing Framework in the governments action plan. To avoid the aforementioned inflation, the Bank of Canada has several tools at its disposal. Raising the amount of dif fidence requirement is an absorbing contractionary choice, so is raising the brush off rate charged to major banks. These two together act to reduce the greatest inflationary obstacle, that is mankind opinion. Thus, as shown in Fig2, an increase in the interest rate results in a decrease in consumer demand for money.This decrease in demand would be useful in controlling inflation once recovery had occurred. However, in the present, the Bank of Canada is apparent to concern itself with slowly increasing the money supply, and keeping a inactive overnight rate.It is unknown whether the stimulus package is the cause of the rebound in the Canadian economy, this may have been caused by market forces. Additionally, the retraining programs atomic number 18 unlikely to have already decreased structural unemployment, as one of their major faults is the length of date needed to complete such a course. These so called time lags are problematic because once the retrained crowd makes the ir way back into the labour market, 3-4 years may have passed, almost a full oscillation of certain economies. As stated in the article, the Canadian recovery itself does not stand on stable ground, especially so given that a significant part of the EU is heavily in debt and the States no yet out of its own recession, important, as 80% of Canadian imports are destined there.Whether or not the measures taken by the government with appreciate to stimulating the Canadian economy in the long run shall be successful remains to be seen. However, the average middle class citizen most likely has experienced the benefits of measures ranging from tax credits and reductions to funding direct to the industry they work in.