Chapter 8 - Stablization Policy

Article: http://www.canada.com/vancouversun/news/editorial/story.html?id=f58adc96-45fd-4936-a0b3-fbaa3b7200ed

Almost 38 percent of Canadian’s tax dollars were going towards the huge national debt, but it is not enough. Canadian workers and businesses have been reducing the national debt by $54 billion in a decade. This deduction comes from the surplus of the Employment Insurance fund. Many employers and workers have complained about the payroll deduction on employment insurance as another form of tax rather than an insurance fund. At last in February, the Conservative government ended this practice by making employment insurance as a crown corporation. During recession when more workers are unemployed, the demand for the premium is going increase. The Actuarial Institute of Canada says that a fund of 10 to 15 billion dollars would be enough to avoid significant changes in employment insurance rates.

This article is relevant to chapter 8 because of Employment Insurance. In this chapter we learned that Employment Insurance is an automatic stabilizer. It is there to help stabilize the economy when individuals become unemployed and their income becomes zero. As a result their spending is zero and it decreases the level of spending. Instead of using the Employment Insurance to increase spending, the government is using it a form of taxation to reduce the national debt.

I think it is a smart idea for the government to use the surplus from Employment Insurance to decrease the national debt. Not only does it serve as insurance for workers when they are unemployed, it also serves as a line of credit for the Government of Canada. The money can be used during recessions or catastrophic events. It may seem unfair for workers to pay for a premium that repays the national debt, but it has to be paid in some form or another. This would be the best way for the government to use the surplus money wisely.

Chapter 7 - Money and the Canadian Banking System

Article: http://www.reuters.com/article/businessNews/idUSN0213717120080502

Jill Vardy said on Friday that the Bank of Canada has not joined other central banks to increase liquidity due to the good market condition. The markets and institutions of central banking in Canada are different and better than elsewhere. In countries like U.S. Federal Reserve, The European Central Bank, and the Swiss National Bank all announced a boost in their liquidity of Friday. The amounts of pressure in Canadian money markets are relatively small compared to those in United States and Europe. That is why the Bank of Canada has yet to join with other central banks to increase liquidity. In general, Canadian interbank market is much less than they are internationally.

Relations to Chapter 7: Canadian Money supply, demands / supply for money, and responsibilities of the Bank of Canada

This article talks about the supply of Canadian money. We can see in that they have used the formula, change in the money supply is equal to excess reserves over reserve ratio, to determine the amount of money they need. In t his case the Bank of Canada does not join with the other central banks in boosting liquidity because they already have enough money on the market to going around. The market conditions are active and in good shape, which means less money are being stored into savings account and more money is on the market. When there is more money on the market the Bank of Canada does not have to liquidate their liquid assets to lend money out to people.

I think the bank of Canada has made a good decision in not joining the central bank so early to convert all their liquid assets. Supply more money without the demand is just useless. Therefore, leaving the assets as the way it is will be the best thing to do. The Bank of Canada will need to make sure the demand and supply for money are the same. This way there can be a maximum increase in GDP.

Chapter 6 - Determination of National Income

Article: http://www.ottawabusinessjournal.com/318377005598058.php

Canada’s international trade surplus has increased by more than $2 billion in February. Due to the increase in exports and decrease in imports, the trade surplus has risen from $2.8 billion to $4.9 billion. The amount of exported goods grew 3.8% in categories such as automotive products, and energy products. The surplus was also driven by the decrease in imports of energy products. In addition, Canada’s export to United States has surged from $1.81 billion to $8.1 billion. This was the greatest surplus in more than a year. Also, Canada has decreased 3.4% in imports with the United States. This surplus was also gained because of decrease imports and increase in exports to countries including Japan, European Union, Netherlands, and Italy.

Relationship to Chapter 6- Multipliers, GDP

This article is related to chapter 6 because of the increase in GDP due to exports, foreign-trade multiplier. In this situation the GDP has rise because of the decrease in exports, since exports decreases the GDP. The export multiplier we have learned in class can help us identify that increase in exports is an increase in GDP. When the number of imports go down it means that more households are spending their money on domestic products, which is a good thing because it increase GDP. This way the money does not leak out of the circular flow of money. This is very important because in the expenditure multiplier we have learned that a spending of $1000 will not increase GDP by $1000, but instead it will increase by $5000 if the marginal propensity to spend is at 0.5.

We can assume that the economy of Canada is doing quite well, since there is an increase in exports and decrease in imports. People are spending more money in wages, rent, and interest on Canadian households when there is a decrease in imports. When Canada exports more goods it creates more job opportunities for everyone. As a result, it will cause an increase in GDP. If imports were to be increase, it would definitely not be good for Canada because that it means less goods and services are being produced and less people are able to get a job. Although this is foreign trade multiplier, the other multipliers can also be taken into consideration. For example, when the economy is doing well the government would probably want to increase tax and decrease spending. In order to find the GDP of this action, we would have to use balanced-budget multiplier to find out the net value of the GDP.

Chapter 5 - Economic Indicators

Article: http://www.thestar.com/Ontario%20Budget/article/350610

In this article Finance Minister Dwight Duncan is trying to increase the economy of Ontario by helping the unemployed and the poor in a provincial budget. He plans 1.5 billion dollars to Jobs Action Plan over a three year period. The plan was set up due to high unemployment rate between 2001 and 2006 when 77,000 manufacturing jobs were lost. Duncan says, “The plan will strengthen long-term economic productivity, while stimulating investment and job growth today, and move us to a greener, more sustainable future.” By 2010 the economic growth is expected to jump to 2.8 per cent. The plan also offers training for unemployed workers for new jobs, expand apprenticeships, built more colleges, and help students with education costs. A total of $355 million over three years is allocated to retrain 20,000 unemployed workers. In addition to unemployment the plan also targets poverty, they will be allocating 135 million over a 3 year period for free dental care program and 32 million for student in nutrition programs. Also, 750 million dollars over four years in business tax breaks .

Relationship to Chapter 5

This article is related to chapter 5 because it uses unemployment as an indicator to the economy and in this chapter we have learned about unemployment rates and different types of unemployment. Ontario government wishes to improve the state of the economy by introducing new plans to help people become employed. I believe they are mostly targeting people with structural unemployment because they offer training and schools to help them get a job. This plan is also good for people with seasonal unemployment because they can get the education they need to work during their off-season. This way they will not have to rely on the government for income during the off-season.

I think this is a good step forward in decreasing the amount of people with structural unemployment. The plan will help the Canadian economy to function at full efficiency because people who would like to work, but unable to work due to lack of skills will decrease the number of people who are unemployed. Also, decreasing unemployment rate will stimulate economic growth since most of the people will have a steady source of income and will be making purchases. In addition to allocating more money for the citizens it is wise for the government to give more tax breaks because of the incentives it will promote expansion and investment.

Chapter 4 - Government in Canada

Article: http://www.jamaica-gleaner.com/gleaner/20080218/news/news4.html

In Jamaica the Senate had reviewed the Income Tax Act to provide better tax incentives for saving in pension plans. The new pension plan included an income tax relief up to 20% of the annual chargeable income of an employee or a self-employed person that goes into the retirement plan. Employers would receive income tax relief on the amount of money they contribute to the employee's pension plan. The new bill also promised that when employers’ purchase is less than 10% then the employees may purchase the difference between the employers' shortfall, but cannot exceed 20%. The new bill also removed the limit of $120,000 for lump-sum payments. Senator Don Wehby regarded this as most important proper arrangement placed to enable all Jamaican citizens to have adequate pensions saved up for their retirement. He also promised that more changes to the tax laws would be made, such as providing tax relief. In addition, wider review of the country's taxation regime will be discussed at a later time.

Relationship to Chapter 4 - The Growth of Government Spending

This article is related to chapter 4 because Wagner's law of increasing state activity can justify the actions that the Jamaican government is doing. Pension plans are an example of transfer payments. These are monies paid out by the government to individual and other levels of government where no service was performed for the money. It may be a possible that Jamaica may follow Canada's footsteps in terms of government spending in transfer payments. Transfer payments have risen from 17% to 51% from 1930 to 1992 respectively. Due to rapid economic growth in Jamaica, the government has become socially conscience about the less fortunate. This is because there is a transition from a rural to an urban country in Jamaica.

I believe it is a good idea for Jamaica to amend their Income Tax Act to create better pension plans for their citizens. This encourages saving for retirement. If they are planning for their retirement, it will mean that the government saves some money in the long run since citizens are less likely to get help from the government. With money saved it can allocated to other services that requires more attention, such as health or education. In conclusion, reviewing the Income Tax Act will definitely benefit Jamaica's economy as a whole.

Chapter 3 - The Role of Government in a Market Place

Article:
http://www.reportonbusiness.com/servlet/story/RTGAM.2008
0117.wtaxcode0117/BNStory/Business/home

Canada being the one of the highest personal tax income tax burden, the Federal Government of Canada is looking at reducing personal taxes. This reduction will help Canadians save about 25 billion dollars by 2012. The proposal is to replace the 15%, 22%, 26%, and 29% tax rate into a 15% and 29% rate by 2012. In addition, they are increase the limit of not paying tax from $9,600 to $15,000. The proposal also suggests that every category of taxpayer will pay less income tax, including one-earner and two-earner households, married people with or without children, singles, and seniors. This tax relief system is proportional. The more a family earns the more tax savings will be. This is especially beneficial to middle class and high earners that pay the majority of tax in Canada. The main economic purpose of this proposal is to encourage entrepreneurialism, risk taking and hard work.

Relationship to Chapter 3 – Distribution of Income, Economic Stabilization

There is no doubt the government has a large involvement in the amount of tax each citizen. In today’s society there is a huge competition of income. The rich will get richer and the poor will get poorer. With this kind of society the government will try to reduce the gap between the two extremes so they can compete with each other. In order to do this the government will propose tax relief. Tax relief would help a lot of low income families because families who make around 15, 000 (considerably low) would not have to pay tax. The government introduces things like welfare programs, reducing tax rate, increase the limit of not paying tax, and etc to help to reduce the income gap. In addition to distribution of income reducing tax is a way of stabilizing the economy. If the government feels the economy is experiencing slow growth or high unemployment they will usually increase their own spending on goods and services, and decrease the amount of tax collected. A decrease in taxes would mean citizens would have more money to spend.

All in all, I think reducing the tax would be a good idea for the government to help out the low income families. Canadian economy does not need any more low or high income families, we need more middle class in order to balance the difference. Reducing tax would also promote growth in the economy since people will have more money to spend. I am all for lowering tax rate since it would benefit many low income families.

Chapter 2 - The Operation of a Market

Article: http://in.reuters.com/article/businessNews/idINIndia-30333520071105

This article talks about how buyers are demanding for natural rubber and the supply will not be able to sustain the high demand. The strong demand is mainly from China because of China’s booming economy. Last year China imported 1.6 million tonnes of natural rubber to make running shoes and tires. Also, global consumption of natural rubber is expected to rise. This creates a problem for the supply market because the world’s largest natural producer, Thailand, may decrease about 3 million tonnes due to expected heavy rains next year. In addition, the second largest producer, Indonesia, is expected to remain to produce about 2.8 million tonnes due to climate change and poor yield. Finally the third largest producer, Malaysia, may lose 250,000 hectares of land for plantation due to industrialization causing production rate to drop.

This article relates to supply, demand, and elasticity in chapter 2. In chapter 2, it is suggested that if a product is demand inelastic the price of the product will not affect the demand of the quantity very much. In addition, if the supply is inelastic, a change in the price will not affect much of the supply of quantity available. We can see that natural rubber is demand and supply inelastic. Even though the price of it is increasing, the demand for natural rubber is still robust. But the quantity supplied will be reduced due to weather condition, shifting the supply curve, and the price of the supply will increase. This is shown in the article, when the supply of natural rubber decreases and the price increases. We can also see in this situation the supply and demand is not at an equilibrium point because the supplies are not meeting the demands; the supply of natural rubber is lower than demand. A substitute for natural rubber is synthetic rubber, but that is even more expense as it is made from crude oil. Therefore, the margin between demand and supply will continue to widen and will cause the price to increase even more in the future.

I think in order for the supply to meet the needs of the demands, more countries that are able to produce natural rubber should help produce more natural rubber. Substitute for natural rubber will probably not be found very soon and the price of crude oil is very unlikely to drop. So, another way to improve the supply is to have a technological change, if technology can help the tree produce rubber faster the supply of natural rubber will certainly increase. With many countries experiencing industrialization, undoubtedly the demand for natural rubber will remain high.