Chapter 4: Government in Canada

Source:
http://economictimes.indiatimes.com/International_Business/Canada_cuts_lending_rate_to_historic_low/articleshow/4010197.cms

Summary

In the heights of our global recession, the Bank of Canada has dropped lending rates to a historic low of one percent. By this action, the government of Canada hopes it would stimulate the economy. It is the third interest cut made by the Canadian central bank since the recession began. In addition, Canadian economists believe the Gross Domestic Product (GDP) would be dropping about 1.2 percent this year. Some of the factors are exports of trades are down and the domestic demand is shrinking. Fortunately in 2010, Bank of Canada expects the Gross Domestic Product to spring back and grow up to 3.8 percent.

Connection

The link between this article and the fourth chapter of the textbook is Gross domestic product (GDP). GDP represents the value of all the goods and services produced in Canada in a given year. Economists from banks estimates in the year of 2009, the Gross Domestic Product will drop by 1.2 percent. However, it would grow by 3.8 percent in 2010. The percentage of GDP can be also seen as the total government net debt. Net debt is the gross debt minus recorded assets. If the net debt declines, percentage of GDP increases. If the net debt increases, percentage of GDP decreases. In our current recessive economic situation, economists are expecting the Canadian federal government to have a larger debt than the past few decades. By this, the Gross Domestic Product would decrease.

Reflection

I believe the Canadian central bank cutting the lending rate will do little effect to stimulate the economy. With the lending rate cut, banks expect people would be attracted in borrowing money. In the present recession, the economy needs consumer to spend their money. However, the consumer’s confidence is still low. This is because many big companies are affected hard by the recession and has layoff many employees. Instead of dumping taxpayer’s money into the economy like the United States, I believe Canadian government should invest more in building infrastructure. In short term, more jobs are created and money is spent on something. In long term, there will be an infrastructure used like a bridge.