Canadian Macroeconomic Policies

Paper Info
Page count 7
Word count 1909
Read time 7 min
Subject Economics
Type Coursework
Language 🇬🇧 UK

Canada is one of the wealthiest nations in the world and, it has the tenth largest economy in the world, measured in US dollars. It is a member of OECD (Organization for Economic Co-operation and Development) and the G8 (Group of Eight). The service industry dominates the economy and it has a large manufacturing industry. Canada’s market-oriented economic system is almost the same as that of US and, its patterns of production. Even with the global economic crisis, Canada’s unemployment rate stood at 8.6% in June 2009. In 2008, Canada had the lowest government debt burden in the G7 and in 2006; its imports and exports combined ranked eighth in the world. It has a significant natural resource including forests, oil, mines, fishing and natural resources. Analysts’ show that the economy is recovering from the global recession and its economic growth is expected to rise.

The bank of Canada is responsible for the formulation and implementation of monetary and fiscal policies for the country. In April 2009, Mark Carney the Governor of the Bank of Canada, said that the bank had a plan to restore growth and confidence, that they could they could manage their affairs to lead to a recovery. In 2007, Canada was affected by the financial crisis, which caused a worldwide recession and this lead to great concern by the government. The Bank of Canada has the mandate to support economic and financial condition of the country. Since Canada has an open economy, its recovery depends largely, on the action taken by its trading partners to ease the severe financial strain (Bank of Canada 2009, par. 1-4).

The Bank of Canada has an inflation target of below 2% and to achieve this with the current crisis, it has cut its policy interest rate. In 2009, it set a historic low interest rate at 0.25%. This assisted commercial banks in reducing funding costs thus, lowering the lending rates. Because the loan rates are low households, banks and businesses have increased the confidence to spend. The Bank has acted responsibly to tackle the problems of liquidity in the recession period. The government has put in place financial and monetary stabilization policies since, the 2008 fall. With the lending rate close to zero, the Bank is preparing to execute its modern methods like buying the government’s debt and lend direct to non-financial institutions. The government put aside 200 billion dollars to support the financial banks. The money was from new bonds and it was as short-term loans or asset swaps. According to IMF, Canada being the country with the best financial system, has incurred highest stabilization costs behind Britain and US in the G8 (Bruce 2009, par. 22).

The Economic Action Plan was introduced by the government in 2009 to respond to the global financial crisis. It aimed at protecting the economy and at the same time, offering long-term solutions of growth and prosperity. It entailed an action to help the Canadians and encourage spending. Through provision $8.3billion, necessary training would be provided to the citizens to help them prosper in the economy of tomorrow. In addition, it has a policy of providing personal tax relief in 2008 and 2009 and, for other five fiscal years. To stimulate construction the government planned to provide funds, promote home ownership and improve energy efficiency. It also aims at growing and speeding up federal investments in infrastructure so that after the crisis the country could surface, with greener and current infrastructure. The government also has a policy in place to support sectoral adjustments, protect jobs during the crisis period, and improve financial access of businesses and households (Government of Canada 2009, par. 1-4).

Fears are that the unemployment rate could increase if the demand composition changes. The demand composition may be diverse if aggregate demand improves, than it was before the crisis. The shift in demand and supply curves will require time before the economic structure matches the demand change. In addition, if the exchange rate changes, it will be difficult for the Bank of Canada to adjust its interest rates to match the prices. The Bank might step in to control the rise of their dollar, though it is not in their mandate to involve in foreign markets (Mike 2009, par 2-7).

The global financial crisis and the cyclical slowdown seemed to end the long period of economic growth. The crisis has dragged down the exports value in the manufacturing industry. The challenge will be to balance the risks of inflation and short-run growth while ensuring that the Dutch disease symptoms do not develop. Central regions with a stable economic base, have been strained by the increasing exchange rate though, the commodity booms has really benefited Canada for the past years. However, the elastic economy has entered the crisis period from an unavoidable situation. In 2009, the economy is expected to recover and come out of the credit crisis still firm despite the slowdown in 2008. The financial market regulators and the central bank stabilize the financial systems and make them more efficient. Policy makers have a duty to improve expenditure controls, speed up debt repayment and, put more on existing resource revenues aside to prepare for implications of fiscal policies on demographic change.

Reduction of taxation burden in the economy has been given a high priority by the Canadian government. In fiscal surpluses perspective, they have reduced corporate incomes and capital taxes, and have provided personal tax relief besides cutting the federal value added tax. This has reduced tax damages to the economy and has advance business competitiveness. Numerous tax preferences to firms, might create loopholes and narrow the tax base causing a distortation in resource allocation hence, they should be removed. User fees and indirect taxes like levies on environment, Value added Tax and property taxes are preferred since, they do not affect economic choices like the income taxes. Lower personal and corporate income taxes improved entrepreneurship, innovation, capital formation and labour force participation leading to improvement of living standards (OECD 2009, p.3).

In the energy sector, improvement of fiscal management could be achieved by adopting careful allocation of revenue to a long-term fund from non-renewable resources. Through efficient federal-provincial supervision, environmental strategies are improved. An efficient and effective system of taxation is necessary so that energy supply plans can be realized on time. The energy sector should be paid attention to since it plays a major role in the economy of Canada.

Compared to the other G7 countries, Canada’s agricultural structure is large. To meet competition and environmental dispute, the provincial and federal governments have undertaken modifications on various areas. The federal government has ended the marketing domination in the barley and wheat market. Execution of Growing Forward structure has begun since the next generation of agri-food strategy and agriculture is being completed. Supply managed sectors that are subsidized and protected by farmers should be liberalized. The government is struggling to come up with the sectors long-term viability since the bio-energy production is under pressure for cheaper production of energy overseas (OECD 2009, p.5).

By 2007, emphasis has been put on managing the crisis of the global financial market, the tough domestic credit conditions and the US slowing economy. Designing a monetary policy to keep the inflation targets with the US economy slowing down and the global financial crisis is a challenge. The interest rates will start increasing when the economic situation returns to normal. Realization of suitable incentives in the financial sector, calls for effective monitoring of the systems. Long-term research is being conducted in the Bank of Canada to access whether the lower inflation target or the price level path targeting is suitable.

The Bank of Canada is putting efforts to improve competition, flexibility and transparency in the financial markets of Canada. Firms may choose to issue securities to other countries in circumstances whereby each province has its own. A single regulator by a limited enforcement authority will eliminate most inefficiency. In addition, the competition straining the banking systems regulation is reduced making the impact on economic growth more significant. Competition in financial markets can be attained only if the merger ban enforced by the government is lifted.

The fiscal condition has improved, the public debt has declined and the deficits turned into surpluses making the country have the lowest debt among the G7 countries. A combination of low debts and low interest rates has led to a substantial reduction in debt service costs. Government should avoid spending beyond actual budget levels since it is unlikely that the slowdown experienced in economic activity will lower the revenue levels. The federal government should focus mainly on levels of subsidies, mainly in agricultural sector and transfer to government’s lower levels. The provinces should double their efforts so that they spend efficiently, especially in the health care sector.

Canada is a member of the G20 and they held a meeting in London to look for a solution to the global economic and financial crisis. Its Economic Action Plan fulfills the countries commitments to offer timely spur to domestic demand and at the same time, sustaining long-run fiscal policies. The IMF requirements were that nations in a better situation should add a 2% fiscal incentive of GDP to ease the damaging effect of the recession and Canada exceeds that. This has helped the country be in a better position compared to other countries in the strategies for coping with the global recession. The Bank of Canada has put in place fiscal and monetary policies to ensure that the target inflation rate is maintained and the circulation of money in the economy is properly regulated.

The recovery of Canada has been stimulated mainly by the consumer confidence in the economy. If the consumers have gloomy confidence and expectations, a recession that would only last six months takes years to end. The more countries worry about finances, the less they start spending even though it would be the best option for a shrinking economy. However, it is evident that the Canadian economy has not taken that direction that is why it is easy for the economy to recover. The consumer confidence has been going on the positive direction so the fears of job losses are fading with time. The tax cuts on the personal income has enabled the citizens have hope that even in the times of crisis, their businesses and activities will be less affected. Thus, it is likely that by 2010, Canada will experience economic growth better than it was before the crisis (John 2008, p. 314).

Canada is one of the nations that have managed to maintain its stability in the period of the global recession. The Bank of Canada and the government have put effective measures in place to ensure that the economy and financial stability is maintained. They are acting on policies to ensure that even after the recession, the country will be in a better position and economic growth and development will be realized more easily. Unlike many countries that impose more taxes on their citizens in times of financial crisis, Canada has reduced the tax imposed on its citizens ensuring that they are less affected by the crisis. There are measures to ensure that possible job losses are handled and the standards of living of the citizens are improved. Thus, the Canadian government and policy makers have run the country effectively during the last two years when the global economic and financial crisis was experienced.

Reference List

Bank of Canada 2009, The bank of Canada: taking action to address the global financial crisis. Web.

Bruce, C 2009, The global economic crisis and its Canadian dimension. Web.

Government of Canada 2009, Canada’s Economic Action Plan. Web.

John, S 2008, Economics for business: Confident consumers. Web.

Mike, M 2009, Dangers facing the Canadian bank. Web.

OECD 2008, ‘Economic Survey of Canada 2008’, Economic Survey. Web.

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EduRaven. (2022, June 14). Canadian Macroeconomic Policies. Retrieved from https://eduraven.com/canadian-macroeconomic-policies/

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EduRaven. (2022, June 14). Canadian Macroeconomic Policies. https://eduraven.com/canadian-macroeconomic-policies/

Work Cited

"Canadian Macroeconomic Policies." EduRaven, 14 June 2022, eduraven.com/canadian-macroeconomic-policies/.

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EduRaven. (2022) 'Canadian Macroeconomic Policies'. 14 June.

References

EduRaven. 2022. "Canadian Macroeconomic Policies." June 14, 2022. https://eduraven.com/canadian-macroeconomic-policies/.

1. EduRaven. "Canadian Macroeconomic Policies." June 14, 2022. https://eduraven.com/canadian-macroeconomic-policies/.


Bibliography


EduRaven. "Canadian Macroeconomic Policies." June 14, 2022. https://eduraven.com/canadian-macroeconomic-policies/.

References

EduRaven. 2022. "Canadian Macroeconomic Policies." June 14, 2022. https://eduraven.com/canadian-macroeconomic-policies/.

1. EduRaven. "Canadian Macroeconomic Policies." June 14, 2022. https://eduraven.com/canadian-macroeconomic-policies/.


Bibliography


EduRaven. "Canadian Macroeconomic Policies." June 14, 2022. https://eduraven.com/canadian-macroeconomic-policies/.