Article: http://www.vancouversun.com/business/fp//1425343/story.html
Summary
The above article speaks about how the Bank of Canada’s monetary policy affects the mortgage rates. The Bank of Canada can influence both variable mortgage rates and fixed mortgage rates. Variable rate mortgages are derived from prime rates, which many financial institutes set according to the Bank’s. Fixed rate mortgages are based on bond yields, which are influenced by the market and dependent on the Bank’s moves. High bond yields create higher mortgage rates due to higher funding costs. As the Bank’s main focus over the past few years have been inflation, interest rates are increased and decreased to influence demand, in order to maintain a two percent inflation rate target. To further encourage lending, the central bank has been injecting liquidity into the financial system via purchasing assets from financial institutions. Through all this, it seems to have made bond yields in the market low, making fixed mortgage rates more appeasable.
Connections
The connection between this article and the chapter is the Bank of Canada’s monetary policy. It is described as the action taken by the Bank of Canada to alter the money supply, and ultimately economic conditions in the text. In this case, the Bank aimed to keep the inflation rate target of two percent through raising or lowering interest rates. Money supply is altered by the changing interest rates, and the economic condition is the rate of inflation.
Refection
I can see how it is important for the Bank of Canada to maintain control over the economy through controlling the money supply. In our recessionary times where people do not spend as much, the inflation rate will just keep rising. Changes in interest rates, mortgage rates, etc helps provide an incentive for people to borrow money and/or spend. It is nice to known that the Canadian central bank is constantly trying to fix an economic problem, even if the current one is globally affecting everyone else in the world as well.
Tuesday, March 31, 2009
Saturday, March 7, 2009
Chapter 6 - Determination of National Income
Article: http://www.theglobeandmail.com/servlet/story/RTGAM.20090302.wgdp02/BNStory/National/home
Summary
The article I have selected is on an interview with Canadian Finance Minister Jim Flaherty with The Globe and Mail. Mr. Flaherty states that he expects a “sharp, substantive drop in GDP” for last quarter and the next from Statistics Canada. Along with Mr. Flaherty, many economists have predicted a 3 or 4 percent drop as well. The finance minister suggests that through the GDP figures, the stimulus-spending of $3-billion needs to be quickly enabled by the opposition MPs. Without the spending, Mr. Flaherty fears for a “longer, deeper recession for Canada”, which would subsequently damage Canadian families and businesses. Though Liberal finance critic John McCallum believes time is still available for the government and the opposition to decide on the distribution of the spending.
Connections
The connection between this article and chapter 6 is government spending and the Keynesian economic theory. Government spending helps increase GDP through putting money into businesses, which can then provide income to its workers. The workers can then use that income, putting back the money into the economy. This relationship between income and consumption can be seen in the circular flow of money. The Keynesian economic theory, where John Maynard Keynes proposes that the government takes an active role in the economy, includes government spending. This spending would help support demand for goods and services, therefore preserving employment. In this case, the $3-billion spending will help our current economy get out of or at least stall the effects of the current recession.
Reflection
With the current state of the economy, government spending would help keep up employment in the country. As seen in my previous entry, unemployment rates in the province of British Columbia, Ontario, and Quebec is increasing. The decrease in employment would most likely drop Canada’s GDP, resulting in further unemployment. By stimulating the economy via spending, there will be more money circulating around. More money means more products and services can be bought. The increase in demand would be matched with an increase in supply, creating more jobs and money in the market. Because of this, I agree and support the spending and would like to see it implemented as soon as possible.
Summary
The article I have selected is on an interview with Canadian Finance Minister Jim Flaherty with The Globe and Mail. Mr. Flaherty states that he expects a “sharp, substantive drop in GDP” for last quarter and the next from Statistics Canada. Along with Mr. Flaherty, many economists have predicted a 3 or 4 percent drop as well. The finance minister suggests that through the GDP figures, the stimulus-spending of $3-billion needs to be quickly enabled by the opposition MPs. Without the spending, Mr. Flaherty fears for a “longer, deeper recession for Canada”, which would subsequently damage Canadian families and businesses. Though Liberal finance critic John McCallum believes time is still available for the government and the opposition to decide on the distribution of the spending.
Connections
The connection between this article and chapter 6 is government spending and the Keynesian economic theory. Government spending helps increase GDP through putting money into businesses, which can then provide income to its workers. The workers can then use that income, putting back the money into the economy. This relationship between income and consumption can be seen in the circular flow of money. The Keynesian economic theory, where John Maynard Keynes proposes that the government takes an active role in the economy, includes government spending. This spending would help support demand for goods and services, therefore preserving employment. In this case, the $3-billion spending will help our current economy get out of or at least stall the effects of the current recession.
Reflection
With the current state of the economy, government spending would help keep up employment in the country. As seen in my previous entry, unemployment rates in the province of British Columbia, Ontario, and Quebec is increasing. The decrease in employment would most likely drop Canada’s GDP, resulting in further unemployment. By stimulating the economy via spending, there will be more money circulating around. More money means more products and services can be bought. The increase in demand would be matched with an increase in supply, creating more jobs and money in the market. Because of this, I agree and support the spending and would like to see it implemented as soon as possible.
