Question

Fiscal Policy Recommendation

Write recommendations for government fiscal policy (specific spending and taxation changes) that you feel would be best for the Canadian economy using your understanding of the economics concepts taught in the course. Use the following guidelines as you write your recommendations: Give consideration to the impact your decisions would have on each of the economic indicators. Your discussion might consider some of the following topics: government debt and the budget surplus or deficit; the impact of these recommendations on government services; how Canadians will benefit from the recommended policies in the short term and in the long term; the multiplier effect; any potential problems with your recommendations. These are just some suggestions. Your argument should discuss several ways that your ideas will impact the economy. The recommendations you discuss could include several of these areas but you can use any relevant course concepts to justify your recommendations.

Answer 1

Recent indicators:

1. GDP growth: 1.9%.
2. Inflation Rate: 2.1%.
3. Interest Rate: 0.5%
4. Unemployment rate: 6.6%.
5. Government Debt to GDP ratio: 91.5%.
6. Private Debt to GDP: 256%.
7. Current Account Deficit: 3.3% of GDP.

By promoting actual economic growth, the Canadian Government ran a deficit of $30 billion. There were also more or less no effects on job results. The demographics are one of the reasons for the decline. There are more people who are under 65 years of age than those under 15 in Canadian history for the first time. The Canadian economy is therefore mainly concerned with increasing growth and rising unemployment.

Recommend relaxed fiscal policies by retaining current levels of government spending and rising corporate taxes. While the expenditure should be retained at current rates, government spending must be changed from welfare expenditure to infrastructure spending.

As the government has invested social benefits and healthcare, the impact on GDP growth and unemployment has not been significant. The current account deficit CAD in Canada is greater than that of the United States. This suggests that the Canadian economy tends to import goods and services in its own market rather than manufacturing them.

The US & India, which are actively encouraging domestic production, are expected to suit Canada. Canada should therefore use deficit financing to provide companies with production facilities, encourage foreign investment in these industries and reduce corporate taxes. It will fuel productivity, increased economic unemployment and reduce the current account deficit.

In addition, monetary policy should be tightened as interest rates have stayed low for a long time. The possibility of rapid and unmanageable inflation increases with loose monetary policy. It has resulted in large amounts of policy and public debt. The chances of economic bubbles are also boosted.

Such proposals on policy would in the short term have negative implications, but it would fuel long-term economic development.