http://www.financialpost.com/scripts/story.html?id=1437494
Summary
Stimulus packages come with dangerous precedents. The last time we tried to fix economy with cash infusion, we got soaring inflation and shrinking GDP. In the US and Canada and other countries, they released trillons of dollars of economic stimulus packages on the world's teeterering financial system which may be helpful to recall that the last the government tried to fix the economy with borrowed money, it made the problem worse. Governments beleived that by forking out the fiscal stimulus by injecting money, it could solve the problem... for now. The fiscal stimulus could also get the patient running and boost employment. But this comes with a haunting tax debt a generation later.
Connections
This article talked about Stagflation and Fiscal policies and how they seem to stabilalize the economy. If unemployment were seen as the major economic problem, the government would endeaveour to increase their spending or reduce the level of taxation. This is what the article suggests to do. But it comes with consequences generations later as the taxpayers will have to pay more eventually. People are actually in stagflation so they are in a situation of depressed levels of real output in the economy combined with rising prices. We know that this was used in the 1970s and it was a product of failed government policy. The type fo fiscal policy the article predicts that we are going to have is discretionary fiscal policy because the governemnt seems to want to improve economic conditions by changing the level of government spending and taxation.
Reflection
The government should inject the fiscal policy into the economy because the economy is already really horrendous. It is better to do it than not to do it at all and wait for someone else to come up with a better idea while the economy is near stagflation. By borrowing a lot of money, they are also increasing their debt in the future and high tax rates will come. Also, Central banks responded by jacking up their interest rates so that they can make up for their mortgages which hurts the economy even more. This situation is pretty hard to stabilize.
Friday, April 17, 2009
Tuesday, March 31, 2009
Chapter 7: Harper says Canada must do everything to fight Slump
Summary
http://www.bloomberg.com/apps/news?pid=20601082&sid=avSjOB31D7is&refer=canada
Stephen Harper said the worsening slump requires the use of everything necessary to spark growth, including possible esteps by the bank of canada to inject money into the economy. Central bank is preparing to use policies beyond interest rates moves as borrowing costs approach zero. This includes buying securities and creating money to pay for them in order to expand lending. This strategy carries the risk of faster inflation.
Connections
This chapter is about money and the canadian banking system. Banks creating money without securities or fiat money is made. According to Greshams Law, bad money forces good money out of circulation. This is partly the cause of the slump and the bad money must be renwewed into good money. The central bank's interest rates moves lower as borrowing costs approach zero. The Bank rate of canada is already low and chartered banks still dont have enough people borrowing money. By creating money, there are indivuduals who are willing to buy money and there are those who are willing to supply money. But demand for money is lower, the government has to create some money to put water on the house on fire. But the water may flood the basement of the house. The risk of faster inflation is a risk the government is willing to pay. It is possible for further economic growth if the bank is able to expand the money supply. BWhen teh bankregulates the money supply in order to influcnce the economic conditions, it is referred to as the monetary policy.
Reflection
I think this is a necessary step for the government in order for growth of the country, if not, a further slump would happen. No risk means no action and we cannot tell the future of the economy so the governemnts decision in doing this to create securities by creating money is a step on using the tools such as the monetary policy to include changes in the bank rate and open market operations.
http://www.bloomberg.com/apps/news?pid=20601082&sid=avSjOB31D7is&refer=canada
Stephen Harper said the worsening slump requires the use of everything necessary to spark growth, including possible esteps by the bank of canada to inject money into the economy. Central bank is preparing to use policies beyond interest rates moves as borrowing costs approach zero. This includes buying securities and creating money to pay for them in order to expand lending. This strategy carries the risk of faster inflation.
Connections
This chapter is about money and the canadian banking system. Banks creating money without securities or fiat money is made. According to Greshams Law, bad money forces good money out of circulation. This is partly the cause of the slump and the bad money must be renwewed into good money. The central bank's interest rates moves lower as borrowing costs approach zero. The Bank rate of canada is already low and chartered banks still dont have enough people borrowing money. By creating money, there are indivuduals who are willing to buy money and there are those who are willing to supply money. But demand for money is lower, the government has to create some money to put water on the house on fire. But the water may flood the basement of the house. The risk of faster inflation is a risk the government is willing to pay. It is possible for further economic growth if the bank is able to expand the money supply. BWhen teh bankregulates the money supply in order to influcnce the economic conditions, it is referred to as the monetary policy.
Reflection
I think this is a necessary step for the government in order for growth of the country, if not, a further slump would happen. No risk means no action and we cannot tell the future of the economy so the governemnts decision in doing this to create securities by creating money is a step on using the tools such as the monetary policy to include changes in the bank rate and open market operations.
Sunday, March 8, 2009
Wanted: Strong support for Aggregate demand
Summary
http://news.bn.gs/article.php?story=20090211193203973
The decline in GDP in the fourth quarter was less than expected this year thanks to an increase in inventory investment. The final sales fell at a rate of 5.0%, it was the largest decline since the second quarter of 1980. Many companies fell at a high pace and this created a big drag on GDP growth this quarter. The employment data from Janujary provided evidence that there is furthur deterioration from the economy. the employment in the house hold survey declined by 1.2 million. the unemployment rate fell from 7.2 % - 7.6%. Household debt has risen from 65% to 135% after tax income. Consumer spending has fallen from 10% disposable income to practically nothing. Orders for capital goods indicate that more declines lie ahead. Mortgage rates have backed up again and applications for lones to purchase homes are falling. The only sector of domestic final demand continuing to grow is government spending. The economy needs strong support for aggregate demand to keep from going crazy ASAP. Revenues will rise back up if the economy recovers. The stimulus packages are temporary but the substancial deficit remaining will have to be dealt with.
Connections
This article talks about how the economy is basically dying. The equilibrium GDP has gone down by by 3.8% at an annual rate. The Aggregate demand for consumption is needed. Disposable income, the income that remains in the household is now practically nothing. because interest rates are killing the mortgage owners. This also reduces spending in the economy because interest rates are high. After-tax incomes remaining reduces even more consumer spending This also triggers 'dissaving'. The unemployment rate going higher makes it so that people have less income or spending is greater than disposable income. Over this period of time, the Aggregate supply is less because less companies are able to increase their total production of goods and services available in the economy over this period of time. The paradox of thrift, the final result, is that since there is an increase of the level of savings in the economy, it will lead to a lower level of income and lower the levels of saving.
Reflection
Wow, there are so many factors considered in the economy dying down. The economy really needs strong support for aggregate demand. The government should get this to the economy ASAP. I believe this has happend because there are leakages from the circular flow of money from the business cycle and that the leakages exceeds the additions.
By the way, here's an interesting video on how the crisis of credit started
http://vimeo.com/3261363?hd=1
http://news.bn.gs/article.php?story=20090211193203973
The decline in GDP in the fourth quarter was less than expected this year thanks to an increase in inventory investment. The final sales fell at a rate of 5.0%, it was the largest decline since the second quarter of 1980. Many companies fell at a high pace and this created a big drag on GDP growth this quarter. The employment data from Janujary provided evidence that there is furthur deterioration from the economy. the employment in the house hold survey declined by 1.2 million. the unemployment rate fell from 7.2 % - 7.6%. Household debt has risen from 65% to 135% after tax income. Consumer spending has fallen from 10% disposable income to practically nothing. Orders for capital goods indicate that more declines lie ahead. Mortgage rates have backed up again and applications for lones to purchase homes are falling. The only sector of domestic final demand continuing to grow is government spending. The economy needs strong support for aggregate demand to keep from going crazy ASAP. Revenues will rise back up if the economy recovers. The stimulus packages are temporary but the substancial deficit remaining will have to be dealt with.
Connections
This article talks about how the economy is basically dying. The equilibrium GDP has gone down by by 3.8% at an annual rate. The Aggregate demand for consumption is needed. Disposable income, the income that remains in the household is now practically nothing. because interest rates are killing the mortgage owners. This also reduces spending in the economy because interest rates are high. After-tax incomes remaining reduces even more consumer spending This also triggers 'dissaving'. The unemployment rate going higher makes it so that people have less income or spending is greater than disposable income. Over this period of time, the Aggregate supply is less because less companies are able to increase their total production of goods and services available in the economy over this period of time. The paradox of thrift, the final result, is that since there is an increase of the level of savings in the economy, it will lead to a lower level of income and lower the levels of saving.
Reflection
Wow, there are so many factors considered in the economy dying down. The economy really needs strong support for aggregate demand. The government should get this to the economy ASAP. I believe this has happend because there are leakages from the circular flow of money from the business cycle and that the leakages exceeds the additions.
By the way, here's an interesting video on how the crisis of credit started
http://vimeo.com/3261363?hd=1
Monday, February 23, 2009
Consumer Prices rise.
http://customwire.ap.org/dynamic/stories/E/ECONOMY?SITE=NDBIS&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2009-02-19-12-38-51
Summary
consumer prices rose in january because of high energy costs. Inflation has been flat over the past year. The labor departmant said consumer prices rose by 0.3 percent. This has never been done for the past 61 years. The possibility of deflation can ocur which can make a recession worse. The concern about deflation represents a marked shift. When soaring energy and food prices threatened to trigger inflation. Recession kept a lid on prices. They expect prices to rise between 0.3 to 1% this year .
Connections
This chapter talks about inflation and is defined as a general increase in the level of prices. But in the case above, consumer prices rose by 0.3 % and it is aable to be calculated on the basis of annual increase in this index. This is an example of cost push inflation because of how supply decreased. it results in higher prices.
Reflection
If the recession continues i think that the inflation percentage rate will be higher in the next annual calculations. Many food and consumer product companys should avoid price cuts because that will shrink consumer spending. Deflation or inflation will not be too big of a deal in ou r everyday lives, but the recession will keep a lid on prices. It is not surprising for inflation to happen since it hasnt happened for more than half a century.
Summary
consumer prices rose in january because of high energy costs. Inflation has been flat over the past year. The labor departmant said consumer prices rose by 0.3 percent. This has never been done for the past 61 years. The possibility of deflation can ocur which can make a recession worse. The concern about deflation represents a marked shift. When soaring energy and food prices threatened to trigger inflation. Recession kept a lid on prices. They expect prices to rise between 0.3 to 1% this year .
Connections
This chapter talks about inflation and is defined as a general increase in the level of prices. But in the case above, consumer prices rose by 0.3 % and it is aable to be calculated on the basis of annual increase in this index. This is an example of cost push inflation because of how supply decreased. it results in higher prices.
Reflection
If the recession continues i think that the inflation percentage rate will be higher in the next annual calculations. Many food and consumer product companys should avoid price cuts because that will shrink consumer spending. Deflation or inflation will not be too big of a deal in ou r everyday lives, but the recession will keep a lid on prices. It is not surprising for inflation to happen since it hasnt happened for more than half a century.
Monday, January 19, 2009
Chapter 4 - Budget invests in Province
http://telegraphjournal.canadaeast.com/opinion/article/557022
Summary
The article begins by talking about how the recession lead to how the global economy has weakened. The Canadian Govonor gave a sigh of relief throughout the country as he pronounced that the government laid an ambitious plan to move the economy forward. Canada's Economic action plan creates jobs, supports families by cutting taxes, and prepares the country for success in the years ahead for strategic investments. The initiative of tax cuts will boost the income and spending to get the country's economic wheels spinning again. The federal government also recognized that each province faces different challenges. They gave new Brunswick a share of 4.5 billion for infrastructure upgrades. New Brunswick will benefit from 420$ million in tax relief for individual and businesses over five years. This year the province will be given 1.7 billion through equalization payments and an increase of 341$ million since 2005-06. The new plan will help New Brunswick emerge from the global recession.
Connections
Canada's economic action plan had tax cuts will put more money back into our pockets. It will boost income and spending to get the economy going again. This relates to social justice as taxes should be equitable. They noticed that the economy had brought people down and so they made this plan to be more "fair" This article relates to equalization payments as the government helped New Brunswick by funding them. The intention is to bring revenues to the levels of Quebec, ontario, saskatchewan, manitoba and b.c. New Brunswick had recieved 4.5 billion for infrastructure projects. With the economy in a recession, the ability to pay taxes are lower. With tax cuts, this increases the ability and the flow of money is higher.
Reflection
The use of equalization payment helps economies in a good way. If the government does this, people will survive by getting jobs. The government invested in new brunswick, and the expected outcome is that people will be able to pay more taxes in the future. The tax relief was beneficial as it was more than 420 million $. This was great as they helped people return to the labour force
Summary
The article begins by talking about how the recession lead to how the global economy has weakened. The Canadian Govonor gave a sigh of relief throughout the country as he pronounced that the government laid an ambitious plan to move the economy forward. Canada's Economic action plan creates jobs, supports families by cutting taxes, and prepares the country for success in the years ahead for strategic investments. The initiative of tax cuts will boost the income and spending to get the country's economic wheels spinning again. The federal government also recognized that each province faces different challenges. They gave new Brunswick a share of 4.5 billion for infrastructure upgrades. New Brunswick will benefit from 420$ million in tax relief for individual and businesses over five years. This year the province will be given 1.7 billion through equalization payments and an increase of 341$ million since 2005-06. The new plan will help New Brunswick emerge from the global recession.
Connections
Canada's economic action plan had tax cuts will put more money back into our pockets. It will boost income and spending to get the economy going again. This relates to social justice as taxes should be equitable. They noticed that the economy had brought people down and so they made this plan to be more "fair" This article relates to equalization payments as the government helped New Brunswick by funding them. The intention is to bring revenues to the levels of Quebec, ontario, saskatchewan, manitoba and b.c. New Brunswick had recieved 4.5 billion for infrastructure projects. With the economy in a recession, the ability to pay taxes are lower. With tax cuts, this increases the ability and the flow of money is higher.
Reflection
The use of equalization payment helps economies in a good way. If the government does this, people will survive by getting jobs. The government invested in new brunswick, and the expected outcome is that people will be able to pay more taxes in the future. The tax relief was beneficial as it was more than 420 million $. This was great as they helped people return to the labour force
Thursday, November 20, 2008
Chapter 3: The End of the World.
The article
http://www.freep.com/article/20081122/BUSINESS01/81122047/1014
Summary
General Motors has reviewed the possibility of bankruptcy. GM basically said to themselves - No! We cannot be bankrupt, it is not an option! Their plan is to receive a share of $25-billion low-cost loan from the government to survive the economic downturn. They argued that consumers are unlikely to purchase vehicles from an automaker in bankruptcy. The congressional leaders said, "if the plans are convincing, they would hold more hearings on a domestic auto loan bailout program."
Connections
General Motors is a privately owned company. It is not owned by the government in any way and now they are requesting money from the government. The 3rd party effects in this case are society as a whole. If GM goes bankrupt, many, many people will be laid off. This is related to Economic stabilization because if GM gets more money, they may get people spending again, which "hopefully" leads to a stabilized economy. On the other hand, if they don't help GM and GM declares bankruptcy, we may fall from a recession to a depression. This is indirectly related to the government because the government absolutely does not want people to be laid off. So adjustments or loans can fix things. This benefits population as a whole, but it will charge people revenue (more tax) for the adjustment. The government wants to get involved in this market (automobiles) because of the economic downturn and in this case, it fits into the "Possible shortcomings of the Free-market System." category.
Reflection
General Motors is not the only company that will fall if the government doesn't step in. Ford and Chrysler is also in the same position. These privately owned companies have possible shortcomings and if these companies survive, it is a positive 3rd party demand since people will have jobs, higher incomes, and a better economy. The government even considering to help privately owned companies is a good thing for the economy. I guess the government will have to adjust their spending's and tax policies to help the economic condition.
http://www.freep.com/article/20081122/BUSINESS01/81122047/1014
Summary
General Motors has reviewed the possibility of bankruptcy. GM basically said to themselves - No! We cannot be bankrupt, it is not an option! Their plan is to receive a share of $25-billion low-cost loan from the government to survive the economic downturn. They argued that consumers are unlikely to purchase vehicles from an automaker in bankruptcy. The congressional leaders said, "if the plans are convincing, they would hold more hearings on a domestic auto loan bailout program."
Connections
General Motors is a privately owned company. It is not owned by the government in any way and now they are requesting money from the government. The 3rd party effects in this case are society as a whole. If GM goes bankrupt, many, many people will be laid off. This is related to Economic stabilization because if GM gets more money, they may get people spending again, which "hopefully" leads to a stabilized economy. On the other hand, if they don't help GM and GM declares bankruptcy, we may fall from a recession to a depression. This is indirectly related to the government because the government absolutely does not want people to be laid off. So adjustments or loans can fix things. This benefits population as a whole, but it will charge people revenue (more tax) for the adjustment. The government wants to get involved in this market (automobiles) because of the economic downturn and in this case, it fits into the "Possible shortcomings of the Free-market System." category.
Reflection
General Motors is not the only company that will fall if the government doesn't step in. Ford and Chrysler is also in the same position. These privately owned companies have possible shortcomings and if these companies survive, it is a positive 3rd party demand since people will have jobs, higher incomes, and a better economy. The government even considering to help privately owned companies is a good thing for the economy. I guess the government will have to adjust their spending's and tax policies to help the economic condition.
Monday, October 27, 2008
Chapter 2: Supply and Demand and Elasticity and Inelasticity and speculators and revenues and ... cigarettes.
News article:
Summary
This news article talks about a price increase in cigarettes in order to finance public wage increases. Brands such as Marlboro and Rothmands will be increased in the price but the question was, will it affect people? They are predicting that the price movements won't affect people since the demand of the cigarettes are not affected due to it being inelastic. Since the smokers are addicted and smoke as a habit, they will learn to accept the price change. The revenues for the company will be higher for the tobacco industries.
Connections
The obvious connection in this article is the inelasticity of the cigarettes. People who are addicted to cigarettes won't care if the cigarettes price increases. Although the cigarettes may not seem like a neccessity, to some it may be. The demand of the product will slightly decrease. People will "try" to quit, or decrease the amount of cigarettes smoked in a day. The companies will be able to produce more cigarettes with more money, but they will have the same amount of consumers. The same can be said for things like alcohol and drugs or any addictive product.
Personal Reflection
Smoking is horrible. The government did a good thing by increasing the price in the cigarettes. Adding a government regulation will decrease the amount of smokers, but unfortunately, according to this article, the cigarettes became a neccesity and it is inelastic. The government should offer more things like a ban on cigarettes because tobacco is harmful to the liver. Canada can learn from this article and take action by adding more government regulations which will decrease the demand of cigarettes. But of course, the actions have to be smart or else it won't work.
Summary
This news article talks about a price increase in cigarettes in order to finance public wage increases. Brands such as Marlboro and Rothmands will be increased in the price but the question was, will it affect people? They are predicting that the price movements won't affect people since the demand of the cigarettes are not affected due to it being inelastic. Since the smokers are addicted and smoke as a habit, they will learn to accept the price change. The revenues for the company will be higher for the tobacco industries.
Connections
The obvious connection in this article is the inelasticity of the cigarettes. People who are addicted to cigarettes won't care if the cigarettes price increases. Although the cigarettes may not seem like a neccessity, to some it may be. The demand of the product will slightly decrease. People will "try" to quit, or decrease the amount of cigarettes smoked in a day. The companies will be able to produce more cigarettes with more money, but they will have the same amount of consumers. The same can be said for things like alcohol and drugs or any addictive product.
Personal Reflection
Smoking is horrible. The government did a good thing by increasing the price in the cigarettes. Adding a government regulation will decrease the amount of smokers, but unfortunately, according to this article, the cigarettes became a neccesity and it is inelastic. The government should offer more things like a ban on cigarettes because tobacco is harmful to the liver. Canada can learn from this article and take action by adding more government regulations which will decrease the demand of cigarettes. But of course, the actions have to be smart or else it won't work.
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