Economics Commentary: Macroeconomics Essay

Areas of Syllabus your commentary relates to Section 4 MacroeconomicsHaving experienced contraction from Q4 08 to Q2 09, the Canadian economy grew 5% in the fourth quarter of 2009, beating predicted forecasts. This harvest-festival was precipitated by consumer and government spending, as well as a growing housing market. There was as well harvest recorded in exports, with sectors such as the automotive, energy and industrial factoring into this. However, economists warn that for this growth to continue, issues such as un exercising and spotty aggregate demand must be addressed.Fiscal measures, meaning decisions do by the central governing body concerning appraiseation and government spending, have already been taken by the Canadian government, in the form of the fiscal stimulus package. This package has in it $12B in infrastructure spending, $7.8B meant to commence construction firms, $8.3 B for skills training and retraining, and several tax credits ranging from the home impro vement ($1350/family) to lowered EI and income tax rates. Fiscal policy generally concerns itself with creating conditions of full employment, price stability and real GDP growth. Full employment, or an economic state where all eligible people who want to release can find employment at the prevailing wage rate, is important in achieving a state of maximum productivity in the economy.The current unemployment rate is 8.2%, above the generally accepted natural rate of unemployment. It has however fallen significantly, with a gain of 159,000 new jobs since June 2009. This may be attributed the lessen in structural unemployment, a seen in image 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 other hand, an make up in aggregate demand, caused by an increase in the disposable income of families may have as well caused the increase in demand for labour as firms expanded or rehired laid off personnel.Price stability is also important for long term economic growth, because rampant inflation, meaning a steady and prolonged increase in the price level, is known to have several adverse effects. These include the extra costs caused by unsteady resource costs, and m unityy losing its role as a medium of value. As the government injects much stimuli into the economy, the risk of demand pull inflation grows. Thus aggregate demand would rise because of growth in the money supply, the price level would increase, as described by the short run equation of exchange, M=P.This increase in the money supply is provided by the Bank of Canada, and included as the Extraordinary pay 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 reserve requirement is an interesting contractionary choice, so is raising the discount rate superchar ged to major banks. These two together act to reduce the greatest inflationary obstacle, that is public 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 likely to concern itself with slowly increasing the money supply, and keeping a stable long 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 argon unlikely to have already decreased structural unemployment, as one of their major faults is the length of time needed to complete such a course. These so called time lags are problematic because once the retrained populace makes their way back into the labour market, 3-4 years may have passed, close a full cycle 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 America 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 respect to stimulating the Canadian economy in the long run shall be successful remains to be seen. However, the average fondness class citizen most likely has experienced the benefits of measures ranging from tax credits and reductions to funding directed to the industry they work in.