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.