The Dinner Party Economics by Eveline Adomait and Richard Maranta provides a deep understanding of the macroeconomic environment and provides an opportunity to analyse the recent decisions of the Ontario government. The Ontario government recently released a new budget that states it will once again run a deficit for the following fiscal year (Morrow, 2016). This will be the tenth time in the last thirteen years that the government has spent more money that it has received from tax payers. With the continuation of borrowing, and the growth of the deficit in the upcoming years, the province is expected to reach the highest level of sub national debt across the entire globe. Currently the net debt of the province sits at about $296.1 billion
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If this situation continues over the long term, it can result in hyperinflation (Dinner Party, Page 62). Hyperinflation is a condition where the price of goods dramatically increases over a short period of time. In Dinner Party (Page 42), it is discussed that an important issue in the economy is how we handle inflation over time. This is caused by the population spending to avoid pending expected price increases and creates a cycle that is hard to control. Hyper
Inflation occurred in Germany in the 1920s as a result of a government program that issued debt
(bonds) to raise money to pay for the results of World War I. While analysing the current government plan it is clear that by continuing to increase the money supply, this can lead to a dangerous …show more content…
Even though spending money may help to avoid a potential recession, the possibility of having high inflation rates could be very harmful. To avoid hyperinflation, the government will eventually have to cut spending and this will unfortunately cause a slowdown in the economy. Even if it is possible to avoid a possible recession now, the province must endure tough economic times at some point.
In addition, while the government plans to increase its debt they run the risk of a possible spike in interest rates. If interest rates rise at any point in time it has the potential to do serious damage to the government. With an increase in the interest rate it results in more money that must be taken out of government revenues to pay for interest on loans. If an event like this were to occur where interest rates increase, the government will be forced to delicate even more funds to paying off the provincial debt. Considering the long term effect of continuing to grow debt, an action that has been continuously carried out by the government of Ontario, it can be concluded that this practice needs to be slowed down and thoughts of paying off the large provincial debt must be part of future considerations.
If this situation continues over the long term, it can result in hyperinflation (Dinner Party, Page 62). Hyperinflation is a condition where the price of goods dramatically increases over a short period of time. In Dinner Party (Page 42), it is discussed that an important issue in the economy is how we handle inflation over time. This is caused by the population spending to avoid pending expected price increases and creates a cycle that is hard to control. Hyper
Inflation occurred in Germany in the 1920s as a result of a government program that issued debt
(bonds) to raise money to pay for the results of World War I. While analysing the current government plan it is clear that by continuing to increase the money supply, this can lead to a dangerous …show more content…
Even though spending money may help to avoid a potential recession, the possibility of having high inflation rates could be very harmful. To avoid hyperinflation, the government will eventually have to cut spending and this will unfortunately cause a slowdown in the economy. Even if it is possible to avoid a possible recession now, the province must endure tough economic times at some point.
In addition, while the government plans to increase its debt they run the risk of a possible spike in interest rates. If interest rates rise at any point in time it has the potential to do serious damage to the government. With an increase in the interest rate it results in more money that must be taken out of government revenues to pay for interest on loans. If an event like this were to occur where interest rates increase, the government will be forced to delicate even more funds to paying off the provincial debt. Considering the long term effect of continuing to grow debt, an action that has been continuously carried out by the government of Ontario, it can be concluded that this practice needs to be slowed down and thoughts of paying off the large provincial debt must be part of future considerations.