Question

2. (a). In response to the outbreak of the pandemic, what are the Government of Canada’s economic response plans or programs to support individuals and families? Explain briefly the underlying economics of these plans or programs In terms of macroeconomic stabilization policy.
(b). In Introductory Macroeconomics, you have learned the Keynesian theory of government expenditure (or government deficit) on aggregate expenditure. Now consider this theory together with its counterpart of the New Classical school you learn in this course (you can find the name in the textbook/slide or the video posted on our course webpage at D2L). Explain concisely why these two theories have different predictions about the impact of government expenditure on
Assignment 2: More impact of COVID-19 on the Canadian economy
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aggregate expenditure.
(c). Once again, go to the website of Statistics Canada and look for the relevant data to assess the impact of the Government of Canada’s economic response plan (as a whole) on aggregate expenditure in Canada. It is not necessary to run any statistical or econometric test, but a diagram should help in your description and explanation.
(d). Based on what you find in above, assess if the two theories are empirically verified, and if so, which one is more empirically valid. Explain and support your conclusion with reference to both the theories and data.

Answer 1

Answer -

a) Economic policies of Canada Government in COVID

In this time of pandemic, like other nations Canada is also struggling to keep its public safe and secure and to provide them with the basic amenities , owing to which in order to stabilize the measures taken up by the government are -

1. DIRECT AND INDIRECT TAX MEASURES- almost $85 billion has been deferred from the tax and customs ,deadlines had been extended till September 1,2020,rate of taxes have been reduced,wavier of interest on existing debt

2. EMPLOYMENT-RELATED MEASURES- $2500 per month ,who was earning or less than it temporary rise is given to their income,promoted work sharing,given relief to certain pension plans, temporary income support for workers,in Quebec temporary layoff on employers behalf etc

3.ECONOMIC STIMULUS MEASURES- giving large employers emergency financing facility,in March bank reduced bank rates by 50 point basis,howevr by the end it was till 0.25%,giving interest free loans and launched insured mortgage purchase programme

4. MEASURES TO EASY LOCKDOWN- however on May 11 it opened schools and stores in Quebec expect Montreal and food outlets were also open ,but currently with again increase it seems they might again shut down

b) Keyens and New Classical on government expenditure:

KEYENS - In the time of pandemic, as per Keynes ,his theory believes that with rise in the government expenditure and lower the volume of taxes can help to push demand in economy making the economy get out from hard times i.e. government policies should be active enough to lead the nation

For him active fiscal and monetary policies are the key factors to remove down fall and initiate improvment, he considers these policies as tools

NEW CLASSICALS - as a basic outline the new classical's believed that recession can bring better jobs than boom ,as in recession the people may be laid off but they will join a job wihich is not better -paid but atleast he can earn from it ; as for government expenditure he believes come from POLICY- INEFFECTIVENESS ; he says that such policies just merely show the changes in GDP those are claimed and may effect the level of employment and output

As for new classical RICARDIAN EQUIVALANCE is seen as financing via taxes or debts would only rise disposaable income of today as in long run debt has to be paid with interest so as such expenditure is unchanged, RATIONAL EXPECTATION HYPOTHESIS.

BOTH VARIES CAUSE - the ideology of both are different classical did not believe in much intervention of government however Keyens views government as pillar to support economical growth .

KEYENS believed that government working at higher levels if says and those policies are implemented it will atleast better on going condition and will improve the overall rate of growth however New Classical feel that this aid is more of burden and as such does no good to public

MORE IMPACT ON CANADIANS AS -

• Change in shoping style as owing to COVID ,people have left the stores empty and have moved to online shopping,making stores more of liability for owners
• People are becoming more concerned about product shortages ,jobs and heathcare for non-covid treatment owing to this local businesses is suffering and also normal day to day working and workers realted to them are unemployed
• As such ,in total consumer behaviour has significantly changed bringing variation in the economical activities

c) Impact of government plans to expenditure

Owing to pandemic the government,ever since March is putting in the money as a result

1. Country has the largest GDP deficit , since World war 2.
2. With the expectations for the nation to shrink more by 7% ,it's one third of population is unemployed amidst pandemic totalling to almost 10% for this year
3. To facilitate the expenditure ,and with no revenues on list ,it is expected to take Canadian$ 768 billion debt
4. As emergency Economic relief $80 billion is given and for wage subsidy $82.3 billion
5. The schools are facing losses of $377 million to $3.4 billion in 2020/2021.

d) As per the government expenditure perspective , keynes theory is more valid as government policies are bringing easy to people and there lives.

Here the KEYENS perspective for the changes done by the government has played a role to help the people whether is by giving tax reliefs or by providing income at time of pandemic various programmes launched has helped to grow ,as per NEW CLASSICAL the burden is not on individual however state is doing it and thus though is in constant pressure but that too for the people only

Conclusion

Owing to the public benefits for Canada the state has been under great debt and all other sectors whether business,jobs ,health,security are at stake but nothing is avoidable owing to pandemic and in such a fall or recession government is the hope and guidance to shed to shackles of recession and take out the economy from it. As what the KEYNESIAN belived

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