Economics

Chapter 6: Determination of National Income
Strong demand driving economic growth, could mean higher interest rates Sandra Cordon, Canadian Press, Published: Thursday, April 27, 2006 http://www.canada.com/ottawacitizen/news/story.html?id=ef61a5ed-f503-476c-b766-dbb654621374&k=4363&p=1

Summary
In the latest monetary policy report, the central bank forecast that Canada's GDP will expand by 3.1 % this year and has increased its forecast to 3% from 2.9% in 2001. However, the pace will slow down slightly to 2.9% in 2008. While prices are increasing moderately, higher interest rates may need to keep the lid on inflation. Also, increase in the policy interest rate may be necessary to keep aggregate supply and demand in balance and prevent inflation. Canada is growing strongly due to the booming energy economy in western Canada. Also, US economy is expanding in the mean time, which would increase demand for Canadian exports. Analysts have stated that Bank of Canada may increase borrowing costs. Prospects for higher Canadian interest rates pushed up the Canadian dollar by 0.43 of a cent to 89.04 cents US. The central bank adjusts interest rates to keep inflation under control in a growing economy. That rate in March was 2.2%, but analysts have warned that oil prices are bound to increase the total cost of living in April and beyond. However, central bankers don't expect that the high costs will cause inflations. Government's plan of cutting federal goods-services tax by one % have helped hold down overall inflation. Still, the strong loonie have held back the export sector, leaving domestic demand to keep the economy floating. Housing investment will likely rise a bit but slow down next year.

Relationship and Reflection
When prices increase, it is likely that inflation will occur so it is necessary to increase taxes to prevent it. However, not all inflation is bad; there are good inflations as well. If the prices increase from 2.0 to 2.5%, then this is considered good inflation as it helps expand our economy. If prices exceeded this percentage, then this inflation is considered bad. According to the monetary policy, when interest rates increase, household savings will increase as well because deposits in the bank can help people earn more money. This will lead to a decrease in spending, production as well as GDP and less income available to households. Also, business investments will decrease because the costs of borrowing to invest are high and the investments tend to be low. A decrease in investments will cause a decrease in spending as well as GDP. Overall, money will go out of circulation and spending will decrease, slowing down the economy. When there is less spending in the economy, aggregate demand decreases and so will prices. This will help keep aggregate demand and aggregate supply balanced, which can help establish equilibrium GDP. The level of GDP will always move towards equilibrium. When the amount of savings is greater than investment, investments will naturally go down to bring it towards equilibrium. I think it is quite surprising that the housing market is doing so well despite the high interest rates. Usually, with such high interest rates, people will not borrow money from the bank to mortgage. However, with the economy doing so well at this stage, investing in houses can help people make a lot of income. This will in turn increase our income and bring up our GDP. Also, as income increases, people tend to spend more in the market, which drives up prices. High prices can lead to inflation, and high interest rate is needed to control it. This cycle keeps repeating, keeping GDP at its equilibrium.

posted by wini_lao @ 3:09 AM 2 comments

Chapter 5: Economic Indicators
Morning business file: Unemployment up (9 a.m.)
edmontonjournal.comPublished: Friday, February 09, 2007
http://www.canada.com/edmontonjournal/news/local/story.html?id=afdc57e7-2102-4351-a818-4a2c9dffd0d3&k=0

Summary
Canada’s economy continues to improve, producing 89 000 more jobs in January. However, unemployment rate increased to 6.2% from 6.1% in December because of an influx of job-seekers. Statistics Canada said together British Columbia and Alberta produced a total of 56 000 more jobs, powering the national employment growth. Alberta unemployment rate was unchanged. A record of 63.4% of working-age Canadians held part time and full time jobs in January. Since October, almost two-thirds of the employment has been increased by part time jobs. Jobs in information and recreation, professional and scientific services, hotels and restaurants and natural resources account for the increase in January jobs. 32 000 of British Columbia jobs came from the skiing industry, where favorable snow conditions attracted many people. Alberta’s 24 000 jobs were mostly full time. However, due to the influx of job seekers, unemployment rate in Alberta did not decline. The province produced many more jobs in areas such as performing arts, recreation and gambling, manufacturing and natural resources. Ontario’s unemployment rate rose from 6.1% to 6.4% because more people are in search for jobs. While Quebec produced 15 000 jobs, unemployment rate increased to 7.7% as more people sought jobs.

Relationship and Reflection
The article addressed the different types of unemployment we studied in this chapter. The fact that many jobs are produced in Canada, yet unemployment rate still increased is because of frictional unemployment. This type of unemployment is of short duration and the individual is expected to find a job quickly. Frictional unemployment tends to be higher when economic conditions are good. In this article, the economy is doing well because plenty of jobs are available. When such condition is present, people will be searching for jobs, or leave one job to look for a better one. Frictional unemployment is also known as the job-search unemployment. The mass increase of job searchers could possibly be graduates from college and university. It takes time for them to acquire information about the jobs that can utilize their skills. Because they are looking for jobs, they are classified as unemployed at this moment. More people are unemployed than employed, so unemployment rate increased. Also, many people are working part time so there is a measure of hidden unemployment in this classification because these individuals are not working as many hours as they would like and they are not contributing fully to the Canadian economy. Also, these part time workers may be considered as underemployed because they may be employed but not at jobs that fully utilize their skills. These unemployment rates are measured in January, so seasonally adjusted unemployment rate is taken into account. All these are taken into consideration to produce accurate unemployment rates.

When summer arrives, more jobs will be available and employment rate is likely to increase. This is because more teenagers will be in search for jobs in the summer. For example, playland and PNE hire over hundreds of students in the summer. There's also lots of sales associates positions available at stores. Also areas such as constructions, tourism, recreation and agriculture will produce more jobs, thus increasing employment rate. However, the same thing in the article might happen again. Becuase of the increased amount of job searchers, there isn't enough jobs for all of them so frictional unemployment will result and the unemployment rate will increase. Let's just hope that won't happen!

posted by wini_lao @ 5:27 PM 4 comments

Chatper 4: Government in Canada
Most Canadians won't snitch on tax cheats
Carly Weeks, CanWest News ServicePublished: Monday, January 15, 2007
http://www.canada.com/topics/finance/rrsp2007/story.html?id=f7c98873-5618-4498-aa96-7d46fb5ab75c&p=1

Summary
A survey was taken place to see how many people would actually report those who are tax cheating. Many said that they will only report such incident if a large amount of money is given to them or if anonymity is guaranteed. The results of the survey indicates that majority of Canadians will not report tax cheating incidents, which means those who are avoiding to report their taxes have little to fear about. Sixty percent of those who are surveyed refused to report people who are cheating taxes even if they know for certain. Those who are willing to do it will only do it if they receive benefits. 37 % of the people surveyed said the factor affecting their decision of reporting is the amount of money involved. Another factor is the person’s relationship to the suspected cheater. One-third of the people surveyed said their family connection is a major influence on their decision to report to authorities. The biggest reason is that people believe others cheating on taxes is none of their business, so they prefer to stay out of it. Others would not report because they think it is hard to prove or they don’t know for certain. Many Canadians are hesitant to report people cheating on taxes even if they know for certain because they think they shouldn’t interfere with other’s business. The number one reason for those who are willing to report is that because it is unfair for some people to pay so much tax, whereas others are avoiding tax. Others said that they will take action in reporting because avoiding tax is against the law.

Relationship and Reflection
Avoiding taxation is against the law, yet many people are doing it. There are many examples of underground economy in Canada. For example, many people have their own property and prefer to rent a part of their property out to earn more income. However, many people avoid reporting the amount of money they receive from rent income. This is against the law. Another example is hospitality where many restaurants owners receive money in cash from their customers. They often under-report their revenues so they will not be taxed as much. Waiters and waitresses who receive tips also avoid reporting tips as a part of their income. All these are acts taken to cheat government tax. Many people are doing this because in Canada, income tax is a form of progressive tax, which means the more income you earn, the more tax you have to pay. It is believed to be best suited for extracting an equal sacrifice from each individual. For example, those who earn $10,000 will have to pay 10% of their income as income tax, whereas those who earn $15,000 will have to pay 15%. When people move into higher tax brackets, the amount of money they earn may be less than before their raise in income since thei marginal tax rate is so high.

In Canada, majority of the tax spending is on social expenditures, healthcare and education. If people are cheating taxes, they are just reducing their own quality of services because government has less money to fund these services. Also, it is citizens’ responsibility to pay taxes because they are the ones receiving the services. In Canada, most tax money is spent on healthcare and education. The healthcare system is present to benefit everyone so they will maintain healthy and work productively in the workforce. The education system helps bring upon well educated children who will be our society’s future. Avoiding taxes will seriously affect these two systems and other systems that are taking place. Also, it is very unfair for people who are paying all the taxes they are supposed to pay. The law is designed to make things equal and fair. How is it fair for people who are cheating taxes to receive equal quality of services as those who paid all their taxes? People may think that if they do not report all their income, there will be little effects. However if everyone does this, then all these little effects will add up to a lot. Government already has a lot of debts in their hands, and they are in need of money to pay these debts and provide good services to citizens. So citizens should first consider what they’ve done before criticizing the government’s services.

posted by wini_lao @ 6:08 PM 0 comments

Chapter 3: The Role of Government in a Market Economy

Alberta's Third Way health-reform plan raises fears of move toward U.S. model
Jim Macdonald, Sunday, February 05, 2006
http://www.canada.com/calgaryherald/story.html?id=22484c85-491d-4dea-a403-a392893fed8c&p=2

Summary

The Third Way health reform plan in Alberta has not received much support from its citizen. Albertans protest against this plan because they fear to move toward an American-style health care. Premier Ralph Klein’s government guaranteed that the province would not violate the Canada Health Act. However, they are now preparing to replace it with a new Health Assurance Act. This act offers citizens the choice of receiving quicker treatment if they are willing to pay. Klein claims this as the Third Way model which falls somewhere between a public and private system. It is guaranteed that people will always have access to healthcare regardless of their ability to pay for public health care is still available. Alberta’s health reform will challenge the Canada Health Act and allow patients to receive better Medicare with money. This also allows doctors to practice in the private as well as the public health care systems. Armstrong, the voice for the Consumers Association of Canada claims that the reforms will open doors to quicker Medicare services for patients who are desperate and vulnerable. She also said that this allows those who are rich to get in the front of line, gaining the most benefits. The Liberal Opposition, Leader Kevin Taft suggested that public health care system may be weakened because of private healthcare, and this may leave patients dying or receiving insufficient care. Another has commented that the government is misleading people in believing that in order to get efficient access to care, we must pay for it.

Relationship and Reflection

In Canada, it is guarantee that everyone will have access to Medicare. With this being in effect, there are positive effects associated with it. If everyone is guarantee at least a certain level of care, disease is less likely to spread among people. People who are healthier are more likely to work productively. This in turn stimulates our economy, making the country a better and healthier place to be in. However, as we learned in Chapter 3, Canada has both a private and public health care system. With Alberta planning to make a shift towards private health care, it has posed many problems for citizens. Individuals are concerned about not being able to afford adequate health care because of low income. Although, government provides free public health care for citizens, the quality of the two systems differs significantly. Due to the fact that doctors are practising in both system, and most are in favour of private because of the high salary pay, it causes doctor shortages in public health care. This will cause long waiting lists in public health care, and thus it will affect the service and care given to patients. Also, the government has introduced price ceilings on health care, which created shortages of health care services. People who are in severe conditions and cannot bear to wait will want access to private health care. However, what happens to those who cannot afford private health care but are desperate for care? They will have to suffer the consequences of accessing public health care.

I believe that individuals should be permitted to spend money on the type of health care services they want. You may think that with private health care being available, it will lead to equality problems such as those who are rich will be better off, while those who are poor will suffer. However, those who are poor will receive health care as well, but just not as equally good. In this world, everything is about money and nothing is fair, so does that mean we have to restrict people’s right and choice in order to make everything fair? If so, then more problems will just evolve. It is believed that with competition, then the world will improve and private health care creates competition. This will push public health care system to improve and bring up their standards.

posted by wini_lao @ 8:28 PM 2 comments

Mr. Bach! I made some changes in my blog, so please remark this one. Thanks!

Chapter 2: Supply and Demand
New house prices go up David Freeman, the Leader- Post September 13, 2006

http://www.canada.com/reginaleaderpost/news/story.html?id=93a81211-5a82-4323-acf2-a2926fe32367&k=61203

Summary
The prices of houses in Saskatchewan continue to skyrocket causing many concerns. According to Statistics Canada, report shows that new houses in Regina rose by 9.3 percent in July. David Hepburn, the president of Saskatchewan Home Builder’s Association claims the shortage of construction materials and labour is responsible for the dramatic increase in prices. As wages are increasing, there are more demands for houses. The trades and suppliers are very busy, which affected prices greatly. Materials such as concrete, pipes, petroleum products and drywalls have all put pressure on the prices of new houses. With a shortage of labour in the 47 different trades involved in housing, the prices climb higher. Shipping cost of fuels and other limited supplies like trusses together just worsen the situation. Currently the truss suppliers and engineered floor system suppliers have a shortage of supply available and because they are up to their maximum capacity, they cannot produce more products. The pressure on sale of existing houses is also a factor affecting the prices of new houses. Also, due to the fact that there is a shortage in labour and supplies are scarce, it requires more time to complete the construction of a house, which costs builders and ultimately consumers more.

Relationship and Reflection

The article addresses the supply and demand concepts studied in this chapter. As wages increases for consumers, the demand for houses goes up as well. This is an example of the factor, income affecting demand. The change in complementary products prices such as constructions materials make house prices drive up as well. These are examples of supplies affecting prices. These supplies are inelastic as these materials are necessary to construct a house and there aren't any substitutes. Supplies also respond to prices slowly because it takes a long process to use them to build houses. As mentioned above, the shortage of labour, trades and suppliers affect prices as well because they are all scarce. Also, the article described the pressure on sales of existing houses affects the prices of new houses. This is an example of change in price of substitute products. As we all know, old houses are always a good alternative to new houses, however there aren't many old houses being sold at this moment. Therefore altnernative choices are limited. Houses may be considered inelastic at this moment but if prices continue to increase, it will become more elastic because there are other substitutes like apratments. However, this depends on whehter prices of houses exceed the prices of their substitutes.

Generally, I think the market does not have full control over the prices of products. It is based on the concepts of supply and demand. If there is a shortage of supply, then of course competition for these products will occur, which ultimately makes prices increase. Likely, if there is an increase in demand, there will also be an increase in prices. So, in other words if you want the product, you must be able to compete for it using lots of money. Being a resident of Vancouver, I witness the high costs of houses here. In fact prices of houses are much more expensive in Vancouver than it is in Saskatchewan. Mainly, it is supplies that are affecting the prices in Saskatchewan, but in Vancouver it is actually the high demand. Most people consider Vancouver being one of the best places to live in. Therefore many people choose to live in Vancouver, and as a result demand for a shelter increases. But like i've said before, old houses are not for sale, so many people will turn to new houses if they have the money to purchase one. So, with a high demand, high prcies follow. However if house prices continue to increase, and the supplies to build houses are used up and no one is willing to sell their houses, apartments etc, what will people live in? Will this affect the amount of people choosing to live in Vancouver? If this really happens then in the long run, fewer people will be living in Vancouver and our economy will also be affected. Then, maybe at that moment house prices will go back down, and the cycle just repeats!

posted by wini_lao @ 6:37 PM 0 comments

Chapter 2: Supply and Demand

New house prices go up David Freeman,
the Leader- Post September 13, 2006
http://www.canada.com/reginaleaderpost/news/story.html?id=93a81211-5a82-4323-acf2-a2926fe32367&k=61203

Summary

The prices of houses in Saskatchewan continue to skyrocket causing many concerns. According to Statistics Canada, report shows that new houses in Regina rose by 9.3 percent in July. David Hepburn, the president of Saskatchewan Home Builder’s Association claims the shortage of construction materials and labour is responsible for the dramatic increase in prices. As wages are increasing, there are more demands for houses. The trades and suppliers are very busy, which affected prices greatly. Materials such as concrete, pipes, petroleum products and drywalls have all put pressure on the prices of new houses. With a shortage of labour in the 47 different trades involved in housing, the prices climb higher. Shipping cost of fuels and other limited supplies like trusses together just worsen the situation. Currently the truss suppliers and engineered floor system suppliers have a shortage of supply available and because they are up to their maximum capacity, they cannot produce more products. The pressure on sale of existing houses is also a factor affecting the prices of new houses. Also, due to the fact that there is a shortage in labour and supplies are scarce, it requires more time to complete the construction of a house, which costs builders and ultimately consumers more.

Relationship and Reflection

The article addresses the supply and demand concepts studied in this chapter. The article stated a number of factors that are affecting demand. As wages increases for consumers, the demand for houses goes up as well. This is an example of the factor, income affecting demand. Under most circumstances, the more money consumers have, the higher the demand for the products. This relationship does not apply to all products, but houses are one of the products that can be described by this relationship. Since the demand for houses is high and the supply is low, the prices will increase. As mentioned above, the shortage of labour, trades and suppliers affect prices because they are all scarce. The number of characteristics of consumers is another factor that plays a big role in the change of demand. As we all know, when population increases, the land available will not. This means houses built on these lands will be insufficient for this large increase in population. But with a high demand being present, prices will respond by accelearting. Also, the article described the pressure on sales of existing houses affects the prices of new houses. This is an example of change in price of substitute products. As we all know, old houses are always a good alternative to new houses. The change in complementary products prices such as constructions materials make house prices drive up as well. Houses may be considered inelastic at this moment, but if prices continues to increase, it will become more elastic because there are many other substitutes. However, this depends on whehter prices of houses exceed the prices of their substitutes.

Generally, the market does not have full control of the prices of products. It is based on the concepts of supply and demand. If there is a shortage of supply, then of course competition for these products will occur, which ultimately makes prices increase. So, in other words if you want the product, you must be able to compete for it using lots of money.

posted by wini_lao @ 12:21 AM 0 comments

Chapter 1: Scarcity

Water a strategic resource Oliver Brandes,
Special to The Windsor Star Thursday, October 12, 2006 http://www.canada.com/windsorstar/news/editorial/story.html?id=4787bbd1-3dea-4ffd-8288-1df1ced24b4e&p=2

Summary

It may be surprising to know that Canada might be facing a water shortage because water scarcity has become an alarming issue throughout Canada. Aquifers are shrinking and glaciers are melting at a fast rate. The climate is also becoming warmer causing droughts in the Prairies. Environment Canada reports that with in every four communities, one of them is likely to face water shortages. An international conference – Water in the City- had a long discussion about this problem. It was suggested that the cause of today’s problem was mainly because communities responds to 21st century problems with 20th century solutions such as more concrete, bigger pipes and pumps which leads to bigger tax bills. The real challenge we are facing here is to discover a significant water management approach so it helps us conserve water. To establish this, we are hoping to manage people who live within the watersheds instead of managing the ecosystem. We can conserve water by finding alternatives to the well grounded dams, pumps and pipes we currently have or add reusing and recycling components to these reservoirs. However, most importantly is placing policies on water conservation. For this to work effectively, the community must be fully engaged. Conserving water is not only an approach for a better environment but also helps us save money on the long run.

Relationship and Reflection

It is suggested that Canada may be soon facing a water crisis, so what will happen if we don’t have access to water? We all use water for showering, cooking, agricultural and industrial work and much more. It is obvious that the demand for water exists, but the supply we have in Canada is limited. With the massive pollution contributing to global warming, our climate is undergoing major changes. All these will further threaten our water and fisheries. With water already being scarce, the prices for hydroelectricity will also be increasing. Water may also become a product used for exporting and importing as it is scarce and there’s a high demand for it. But most importantly is that scarce and inelastic products like water can be used to make big money. If this is the case, money will be for sale at high prices. Water is a necessity and we all need it for basic survival. Although water may not run out in the near future, but it is still very important to conserve water at this moment. An effective way to alert people to use water more wisely would be to increase their hydro bills. However the only way water can be conserved is to set regulations to fence out and restrict people’s access to the resource. There should also be restrictions on pollution which accounts for the contaminations of water.

posted by wini_lao @ 12:18 AM 0 comments