Fiscal policies

Good morning Ms. Teetart and fellow classmates. Last week in economics we had discussed a good amount of topics, but for this blog today I would like to focus on fiscal policies and how they are used in an economy. So to refresh our minds the two policies that were discussed last week were contractionary fiscal policy and expansionary fiscal policy.

Fiscal policies can be defined as a government action to influence an economy through the use of taxation and spending. These types of policies are used when the people who make policies believe that the economy needs outside help to reach a desired point. Typically the government’s main goal is to maintain steady prices, an employment level, and a growing economy. And if they see that any of these areas aren't doing so well some type pf policy will be put into action. Fiscal policies can be used to either help stimulate an economy or to slow down an economy that is growing at a very rapid pace.

When an economy is in a recession, expansionary fiscal policy is in order. Typically this type of fiscal policy results in increased government spending and/or lower taxes. A recession results in a recessionary gap – meaning that aggregate demand is at a level lower than it would be in a full employment situation. In order to close this gap, a government will increase their spending which will increase the aggregate demand curve since government spending creates demand for goods and services. At the same time, the government may choose to cut taxes, which will affect the aggregate demand curve by allowing consumers to have more money to spend. The actions of this expansionary fiscal policy would result in a shift of the aggregate demand curve to the right, which would result closing the recessionary gap and helping an economy grow.

On the other hand Contractionary fiscal policy is essentially the opposite of expansionary fiscal policy. When an economy is in a state where growth is at a rate that is getting out of control, contractionary fiscal policy can be used to help bring it to a more sustainable level. If an economy is growing too fast , an inflationary gap will form. In order to eliminate this inflationary gap a government may reduce government spending and increase taxes. A decrease in spending by the government will directly decrease aggregate demand curve by reducing government demand for goods and services. Increases in tax levels will also slow growth, as consumers will have less money to consume , thereby reducing the aggregate demand curve. 

Overall, fiscal policy is a type of economical intervention where the government injects its policies into an economy in order to either expand the economy’s growth or to contract it. By changing the levels of spending and taxation, a government can directly or indirectly affect the aggregate demand, which is the total amount of goods and services in an economy.

Video 

https://www.youtube.com/watch?v=oGQBvDt3BqI  

Work Cited

Expansionary Fiscal Policy-

http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=expansionary+fiscal+policy

  

Contractionary Fiscal Policy-

https://www.google.ca/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&cad=rja&uact=8&sqi=2&ved=0CCQQFjAC&url=http%3A%2F%2Fwww.amosweb.com%2Fcgi-bin%2Fawb_nav.pl%3Fs%3Dwpd%26c%3Ddsp%26k%3Dcontractionary%2Bfiscal%2Bpolicy&ei=4qw9VeLIBoaWNv-egcgI&usg=AFQjCNGHaIeDNXYBRBxXUpMB2wV-u-rqwg&sig2=pgbSelyp2czkSdYMobXZ2A

Video about the two policies-

https://www.youtube.com/watch?v=oGQBvDt3BqI 

What Is Fiscal Policy?

Good Morning Ms. Teetaert and fellow classmates, last week we briefly learned about the topic of fiscal policy and as a recap I will be further discussing what fiscal policy is. Fiscal policy is when the government adjusts its spending and taxes rates to manage a nation’s economy. Fiscal policy consists of making decisions to balance spending levels and taxes, these decisions are the most important decisions the federal government has to make since increasing or decreasing one or the other can greatly affect the economy.

This affects the economy in the sense that if the government needs money to fix the roads they would have to increase the taxes to obtain the money, although inceasing taxes lowers economic activity since with higher taxes, people tend to spend less. Also with increasing tax rates, it can decrease disposable income since it takes money out of households. The government also may need to increase taxes when there is inflation since increasing taxes can lower demand.

Now if the government decides to incease their spending, it increases economic activity since people would benefit from these spendings and the tax rates won’t be as high which means that consumers will have more money to spend and that more money will be left in households. Although, with a decrease in spending means a decrease in taxes which usually leads to high demand which lead to high production levels since people are consuming so much.

How does this relate to the real world? Fiscal policy relates to the real world in the sense that the government can either take money out of your pockets or leave it in there which may lead you to thinking you have more money to spend which either affects us all or some. The decisions the federal government makes on either increasing taxation or decreasing it will affect us and the health of the economy.

Work cited

"What Is Fiscal Policy?" Investopedia. N.p., 16 May 2004. Web. 19 Apr. 2015.

"Fiscal Policy." The Canadian Encyclopedia. N.p., n.d. Web. 19 Apr. 2015.

Infoplease. Infoplease, n.d. Web. 19 Apr. 2015. <http://www.infoplease.com/cig/economics/government-unique-situation.html>

Labour Force Trends

As modern day kids, we hear a lot of stories about the agricultural economy and how it was in demand. Families owned farms and maintained crops, the numbers have decreased and more people are going into the very popular industrial economy. 
The changing labour force that includes the women and college graduates very much affects the labour force. As the world becomes more and more advanced, women advance just as much. They have become more independent and some women are even the breadwinners of the family. The number of women in the work force has increased from about 38% to about 58%. 
College graduates contribute to the learning e

ffect, which is the theory that education increases productivity and results in higher wages. And the screening effect theory suggests that the effect is the theory that education increases. 
In regards to earnings, it is known that earning for college graduates have increases while earning for workers without a college degree have decreased. This is mostly because someone who is capable of receiving a degree is seen as more independent, intelligent, and trustworthy. Also, if you are more educated then you will likely be able to do more work in the field you have studied. If you do more work, you will get a higher salary because you are seen as qualified. 
When talking about supply and demand in the labour market, three definitions should come to mind. The labour demand, labour supply, and the equilibrium wage. The labour demand definition means that the higher the wage rate the smaller the quantity of labour demanded by firms and the government. Labour supply means that as wages increase, the quantity of labour supplies also increases. And finally the equilibrium wage is what does not produce an excess supply of workers nor an excess demand for workers in the labour market. It is found at the intersection of the demand curve and supply curve. 
The final thing being talked about today is wage and skill levels. The amount of skills vary from job to job. A doctor requires a lot more schooling to attain the skills rather than a waitress who just requires a day of orientation. There are four categories: Unskilled labour, semi skilled labour, skilled labour and professional labour. Unskilled labour refers to a job that requires no specialized skills, education, or training (waitress). Semi skilled labour refers to the jobs that need minimal specialized skills and education (fork lift operator). Skilled labour is a job that requires specialized skills and training (plumber), and professional labour is a job that demands advanced skills and education (lawyer). 

Labour Force and Unemployment

Good morning Ms. Teetaert and fellow classmates, the week before our spring break we discussed the topic of the labour force and it's relation to unemployment. We learned about the labour force survey and things such as which categories people fall into as they are employed and unemployed. The labour force survey provides a monthly measure of the number of people who are unemployed in Canada and has a formula to go along with it. The survey excludes residents of the three territories, people living on Indian reserves, inmates of institutions and full time members of the armed forces. It includes each member of a selected household who is 16 years and older during a particular reference week. The formula that goes along with the survey calculates the participation rate. The participation rate is the percentage of the population that is employed or is actively seeking employment. It is calculated as such; Participation Rate = Labour Force
                                                                Population (16+)
Factors that influence participation rate are general economic conditions, an aging population and early retirements, subsidized daycare, changes in family size and income and increased educational opportunities. For people not in the labour force there are different categories they can be placed into, two of these are discouraged workers and out of the labour force. To be a discouraged worker you would have to be a person who would like to have a job but have not made an effort to find one . To be out of the labour force you would have to be a person who has worked previously but is not looking for a job currently. The topic closely related to the labour force is unemployment and the formula for this is; Unemployment Rate = Unemployed Workers x100%
                                                                    Total Labour Force      

Upon further research it's evident that the concern of unemployment in the labour force is very alive in recent years. As the ages of employed people increase the gap between genders also increase, it shows that more men are employed than women. Nearly five years after the end of the 2008-2009 recession, Canada's unemployment rate has remained fixed at 7.2% (December 2013), a level first reached mid-2011. But rather than a static group of individuals, large numbers of workers flow in and out of unemployment each month. Recessions affect these flows in various ways, for example fewer people quit their job or decide to enter the labour market when the job market looks dismal. Following a recession, there is usually an increase in the number of workers that are unemployed for extended periods of time.



https://www.youtube.com/watch?v=GHZUkomO7lI

Work Cited
Yussuff, Hassan. "Underemployment is Canada's Real Labour Market Challenge." Canadian Labour Congress. 7 Apr 2015. http://www.canadianlabour.ca/news-room/publications/underemployment-canadas-real-labour-market-challenge

What is inflation?

Good afternoon Ms. Teetaert and fellow classmates, last week we briefly touched on a topic called inflation. Inflation is the general increase in price and the decrease in the purchasing power of money. We learned that there are different types of inflation, such as hyperinflation, this means that the prices increases very quickly in a short period of time. Another term we learned was inflation rate which is the percentage in the price level of inflation over time, usually in an annual basis. We also talked about the measurement that we use to calculate inflation, and this is the Consumer Price Index (CPI), CPI is a measure that examines the weighted average of prices consumer goods and services, such as food, transportation and medical care. 

The CPI inflation formula is:                                                             

CPI this period - CPI previous period  x 100 = Inflation Rate. 

CPI previous period 

So for example:  

CPI this period = 126 and the CPI previous period = 120 

126-120 x 100 = 5% 

   120    

It is impossible to measure the cost of living using CPI because each individual has a different spending pattern. CPI is a retail price index, it is not a good way to measure the cost of living because the measurements are biased for the following reasons,first is that the prices may increase due to the quality improvements of the products and second is that the weights that are used in the index are not up to date. 

There are three events that causes inflation to occur: 

1. Cost-push

2. Demand-pull

3. Increase in money supply

So  how does inflation relate to us in the real world? 

A couple months ago the price of gas was $1.97 per litre and quickly went down to about $0.60 per litre in a couple of weeks. This also cause the Canadian dollar to decrease in value, while most people were happy with how cheap gas became, the currency exchange rate also decreased. For example; the Canadian dollar was equivalent to 35 pesos in the Philippines. 

CITE:

Simpson, Stephen. "Macroeconomics: Inflation | Investopedia."Investopedia. About.com, 30 Mar. 2011. Web. 21 Mar. 2015. <http://www.investopedia.com/university/macroeconomics/macroeconomics6.asp>.

"Inflation Definition | Investopedia." Investopedia. N.p., 20 Nov. 2003. Web. 20 Mar. 2015.

Full Employment GDP

Good morning Ms. Teetaert and fellow classmates, due to our limited number of classes last week, there’s really only one thing that I’m here to talk to you about today. We learned about full-employment GDP. I’d like to first recap on what was learned in class last week and I will later on explain further. We learned that a certain level of aggregate demand in the economy is required so that everyone that wants to work is able to. In other words, in order for there to be a sufficient number of jobs for those who want jobs and are qualified for those jobs, there is a certain level of demand required for a certain good or service. If not every individual is able to work, then there is a remainder of land and equipment that cannot reach it’s full potential, and some workers remain unemployed. Considering the fact that full employment is desired, we need to get the demand of a good or service to increase so that we can supply a good or service by hiring more people. The amount demanded must increase by a certain number, being what is called the recessionary gap.

Now upon further research, and trying to relate it all back to what's happening in current events, I found an article that brought up the issue of temporary foreign workers. This article from CBC specifically focuses on one certain individual, but I found this relevant to representing the rest of the foreign workers that are being forced out of the country. This article informs us about the thousands of Albertans who's work permits will be expiring on the first of April. Once April 1st hits, those who have been employed for 4 years here in Canada will either have to be taking steps towards becoming full citizens or they must be making efforts to go back to their home country. Another option for these people has been offered by the Alberta Immigrant Nominee Program which will overlook paperwork and take into consideration each applicants credentials, from there, 1 thousand people will have their permit extended for another year. Now only is this newly changed law affecting employees, but employers as well. Employers all over Alberta are still trying to figure out a solution for the loss of employees that they've come to rely so heavily on for the past few years. 

Now you may all be wondering how this relates back to our Economics classes last week, but due to the loss of workers, full employment can no longer be an indicator of the amount of goods and services that are produced. We are no longer reaching full potential or what is considered most efficient for production. There is a lack of workers in the chain, and therefore there is a decrease in production that does not fulfill the demands of the consumers, businesses or the government in the economy.

Temporary Foreign Workers

Works Cited

"4 Tips For Hiring Great Temporary Employees - Blogging4Jobs."Blogging4Jobs. N.p., 02 June 2013. Web. 15 Mar. 2015.
Stewart, Briar. "Temporary Foreign Workers Pin Hopes on April 1 Reprieve."CBCnews. CBC/Radio Canada, 13 Mar. 2015. Web. 13 Mar. 2015.

The Tax Multiplier

Last week in economics, we covered a multitude of topics but today I want to focus in on the tax multiplies and how changes in taxes impact GDP. We learned that a decrease in taxes would lead to an increase in spending but it wouldn’t equal what the reduction in taxes was because people would save some of that money instead. On the other hand, when there is an increase in taxes, money may come out of people’s savings.  From that we concluded, that an increase in taxes usually leads to a decrease in GDP, and a decrease in taxes leads to an increase in GDP.

There were two formulas we also learned last week, which were the tax multiplier and the expenditure multiplier. The tax multiplier tells how a change in taxes affects GDP while the expenditure multiplier tells us how aggregate expenditure affects GDP. Using these two formulas we learned that a $20 million increase in government spending increases the GDP more than a $20 million decrease in taxes. This is assuming that the MPC(Marginal  Propensity to Consume) was the same. One of largest streams of revenue the government has is taxes.

 

This lesson corresponded with the preliminary budget from the city of Winnipeg. In it city officials stated that the cities revenues don’t cover expenditures. So they plan to raise taxes to cover their costs. Property tax is planned to rise by 2.3% where 2% is planned to go into our roads and sidewalks. For the average Winnipegger this means an additional $37 per house worth over $250 000. Frontage levy fees are also going up by an average of $30, water bills are going to increase by $10 starting in 2016, and bus fare is going to increase by five cents to deal with the additional costs of rapid transit.

Winnipeg is predicted to have a deficit of 73 million for 2016 and this number is only looking to grow as in 2017 there is a projected deficit of $217 million. With the additional revenue the city is planning to open a new 1 million dollar innovation capital fund to finance “new ideas” for efficiencies, service delivery improvements, and accountability in the city.  The city is also lowering a business tax from 5.7% to 5.6% with a small rebate for small businesses. There are also upping the arts funding over the next two years raising it from $5 per capita to $7. Also in the plans is a 300 million dollar downtown dog park, which was promised by Bowman in his campaign. Most of the property tax increase is going towards roads.

Even though, I wouldn't know how, the tax multiplier would be useful in determining how these changes in taxes will affect our GDP in the future. Even though at first it will lower GDP, hopefully the changes the mayor plans to make will lead to an overall improvement to the city leading to an increase in GDP.

Work Cited

Beudette, Tegan. "Winnipeggers to pay more:taxes, garbage fees, and transit."CBC. 2 March, 2015. <http://www.cbc.ca/news/canada/manitoba/winnipeggers-to-pay-more-taxes-garbage-fees-and-transit-1.2979195> . 9 March, 2015.

Bonneville, Ruth. "Brian Bowman."Photograph. 17 October, 2014. Bowman: The tough nice guy. Winnipeg Free Press. 9 March, 2015.

Scaller, Tom. "Total Tax Revenue as % of GDP"Chart. n.d. Jonah Goldberg, Quarter Slave. FiveThirtyEight. 9 March, 2015.