The Effects Of Hyperinflation In The Canadian Economy
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5 Pages
The ability to spend money without incurring debt is tough. Whether it involves having to pay for post-secondary education or having to purchase a new car, many people are required to undertake debt. Recently, many Canadians, are facing higher levels of debt which is threatening the economy. In fact, the debt levels for Canadians is at an all time high as households have one dollar and sixty five cents of debt for every one dollar of disposable income (Parkinson, 2016). The illustrates that the Canadian economy is doing well as more people are taking on debt to purchase the items that they want. Overall, the Canadian government needs to implement several polices in order to prevent another recession which will help improve the Canadian economy.
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Due to the rising levels of debt, the risk of inflation is high. As the demand for products and services is increasing, producers increase the prices and can ultimately cause inflation. The government needs to help stabilize the rate of inflation as it decreases the wealth of every citizen. Being able to stabilize inflation is important as it prevents hyperinflation which will destroy an economy (pg 62). Germany in the 1920’s experienced hyperinflation as the price of products were doubling every two days. If Canada experienced hyperinflation, it would cause a high unemployment rate and consequently cause the economy to crash. A policy that the government can use to help prevent inflation is to raise the interest rates, which will help reduce the spending in the economy (pg 32). This will help deter people from purchasing durable goods such as new cars or new appliances. By reducing the spending in the economy, it will help stabilize the inflation rate and improve the …show more content…
In fact, the government needs to consider implementing another contractionary monetary policy. This time, they should decrease the money supply in the economy. If the Bank of Canada, decreases the money supply, it will raise interest rates and will decrease the spending in the economy (pg 158). The reason why interest rates will rise when the money supply decrease is due to the fact that the money demand curve is downwards sloping. This means that as more money is taken out of the economy, the interest rate will slowly increase. At this time, the government needs to decrease the money supply as it helps slow down the economy and will help prevent another
Due to the rising levels of debt, the risk of inflation is high. As the demand for products and services is increasing, producers increase the prices and can ultimately cause inflation. The government needs to help stabilize the rate of inflation as it decreases the wealth of every citizen. Being able to stabilize inflation is important as it prevents hyperinflation which will destroy an economy (pg 62). Germany in the 1920’s experienced hyperinflation as the price of products were doubling every two days. If Canada experienced hyperinflation, it would cause a high unemployment rate and consequently cause the economy to crash. A policy that the government can use to help prevent inflation is to raise the interest rates, which will help reduce the spending in the economy (pg 32). This will help deter people from purchasing durable goods such as new cars or new appliances. By reducing the spending in the economy, it will help stabilize the inflation rate and improve the …show more content…
In fact, the government needs to consider implementing another contractionary monetary policy. This time, they should decrease the money supply in the economy. If the Bank of Canada, decreases the money supply, it will raise interest rates and will decrease the spending in the economy (pg 158). The reason why interest rates will rise when the money supply decrease is due to the fact that the money demand curve is downwards sloping. This means that as more money is taken out of the economy, the interest rate will slowly increase. At this time, the government needs to decrease the money supply as it helps slow down the economy and will help prevent another