Solutions for Canadian Economy

Topics: Monetary policy, Keynesian economics, Inflation Pages: 2 (483 words) Published: September 27, 2014
The Canadian economy is in the recovery phase on the business cycle. Where it has shown growth in the economy every year but it has yet to reach its peak. The economy is growing but at a very modest pace. In order to stimulate growth, some changes must be made to the economy. An expansionary fiscal policy would help the Canadian economy because it will increase the aggregate supply and aggregate demand which will result in an increase of the GDP. Increasing government spending would definitely help the economy grow but the government already spends a big portion of its budget in welfare, education and healthcare. A change in taxation is a good idea for the Canadian economy at this point in time because it needs to increase its aggregate demand which can only happen if consumers are willing to purchase more products. The necessary change that should be made by the government is to lower personal taxes slightly. This gives all the consumers more money to spend whether they are wealthy, middle-class or of the lower class. More money in their budget gives them the ability to spend more on products and services which will surely increase aggregate demand and the GDP. The Bank of Canada also has control over the monetary policies that are used to bring change to the economy. A big part of this is keeping the inflation rate of Canada between 1 and 3 percent. Its goal is to keep it around the midpoint at 2 percent which keeps the economy stabilized. When the economy is lower than two percent, the Bank of Canada makes changes to the different aspects of the monetary policy. The inflation rate in the past year has been lower than 2 percent for the most part until April of 2014. It increased from 1.5 to 2 percent which is the midpoint that Canada is trying to maintain. Lowering the target of the overnight rate is a good idea to increase aggregate demand. The changes made in the overnight rate results in changes in other interest rates. This will help increase aggregate...
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