Canadian economy enters recession
Canada has entered recession due to a fall in the price of US crude oil, which has contributed to a lower demand for oil produced in Canada, therefore leading to a decrease in exports and thus a fall in real GDP. The Canadian economy has a negative growth and a contraction of 0.8% and hence indicating a recession.
A recession occurs due to a period of a decline of GDP and consequently leading to an increase in unemployment. This occurs in the contraction zone of the business cycle. A recessionary gap arises due to insufficient aggregate demand, as shown in Diagram 1, where the output produced is lower than the potential output Yp.
In order for the Canadian economy to close the recessionary gap it can enforce …show more content…
This might have different effects on the AS and SRAS curve, since a rightward shift in the monetarist (SRAS) curve would lead to a smaller increase in GDP and a larger increase in price level compared to the Keynes (AS) curve, which will have a large increase in GDP and a smaller or no increase in price level if in the horizontal section.
However, the expansionary monetary policy might not be as effective due to time lags, time needed to recognize and time for the policy to take place. Also, it might not be as effective in a deep recession, because in a severe recession banks might be unwilling to increase their lending due to fear that borrowers might not be able to pay the loans …show more content…
There are three types of tax cuts, lowering personal income tax, lowering taxes on capital gain, and lowering business taxes. Cuts in personal income taxes and business taxes will lead to a higher- after tax income and higher-after tax profits, therefore creating the incentive for workers to work more, and businesses to invest more. For example, an increase in the number of hours worked per week or month or business pursuing more in R&D. This will lead to a shift of the AD curve from AD1 to AD2 and a shift of the LRAS curve from LRAS1 to LRAS2 as shown in Diagram 3. This will result in increasing long- term economic growth, increase in potential output and reducing the amount of unemployment, leading Canada out of recession. However, tax cuts might not be as effective, because workers may decide to use their higher-after tax income to consume more rather than save, which then would not affect savings and investment. Furthermore, tax cuts will also have a negative effect on the government budget, because tax cuts are reducing government
Canada has entered recession due to a fall in the price of US crude oil, which has contributed to a lower demand for oil produced in Canada, therefore leading to a decrease in exports and thus a fall in real GDP. The Canadian economy has a negative growth and a contraction of 0.8% and hence indicating a recession.
A recession occurs due to a period of a decline of GDP and consequently leading to an increase in unemployment. This occurs in the contraction zone of the business cycle. A recessionary gap arises due to insufficient aggregate demand, as shown in Diagram 1, where the output produced is lower than the potential output Yp.
In order for the Canadian economy to close the recessionary gap it can enforce …show more content…
This might have different effects on the AS and SRAS curve, since a rightward shift in the monetarist (SRAS) curve would lead to a smaller increase in GDP and a larger increase in price level compared to the Keynes (AS) curve, which will have a large increase in GDP and a smaller or no increase in price level if in the horizontal section.
However, the expansionary monetary policy might not be as effective due to time lags, time needed to recognize and time for the policy to take place. Also, it might not be as effective in a deep recession, because in a severe recession banks might be unwilling to increase their lending due to fear that borrowers might not be able to pay the loans …show more content…
There are three types of tax cuts, lowering personal income tax, lowering taxes on capital gain, and lowering business taxes. Cuts in personal income taxes and business taxes will lead to a higher- after tax income and higher-after tax profits, therefore creating the incentive for workers to work more, and businesses to invest more. For example, an increase in the number of hours worked per week or month or business pursuing more in R&D. This will lead to a shift of the AD curve from AD1 to AD2 and a shift of the LRAS curve from LRAS1 to LRAS2 as shown in Diagram 3. This will result in increasing long- term economic growth, increase in potential output and reducing the amount of unemployment, leading Canada out of recession. However, tax cuts might not be as effective, because workers may decide to use their higher-after tax income to consume more rather than save, which then would not affect savings and investment. Furthermore, tax cuts will also have a negative effect on the government budget, because tax cuts are reducing government