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.