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.

The Determination of National Income

So last week, we talked all about the Determination of National Income. First off, lets quickly touch on GDP and what it is. GDP as we've already learned, stands for Gross Domestic Product, and what it measures is the flow of money in the circular flow in the diagram we received and if GDP changes, that means the flow of money has changed.

The national income accounts for many factors that typically include the savings within a household, investments, and the equilibrium GDP with each category being self-explanatory like households saving money for later or near future, and investments from businesses, by spending money towards other businesses which could increase payment to households and then increase GDP. As for equilibrium GDP, all it is, is the GDP being stable if savings is equal to the investment. If there is any sot of imbalance between savings and investment, GDP will either increase or decrease substantially.

Investments can come from many places and sources that include:

1. Income from sales 
2. Borrow from bank or institute
3. Issue shares 
4. Foreign investors 

All of these examples brings money into the government or company and allows them to invest into whatever is needed. 

We also talked about the Paradox of Thrift which essentially was talking about that if there was an increase in the savings within the economy, that would lead to lower levels of income and therefore lover levels of savings over time. A guy by the name of John Maynard Keynes said that a consumer spending contributes to the collective good because one person's spending is another person's income. I found that this makes total sense because if companies are trying to save more money then they won't be willing to pay their workers as higher wages which in return, workers won't have enough pocket money to just put into savings later on. Also, when a person is spending their money more, its giving companies money to provide jobs and give other people an income. 

Lastly, we talked about The Consumption Schedule which explained the APC (average propensity to consume), APS (average propensity to save), MPC (marginal propensity to consume), and MPS (marginal propensity to save). It is a table of numbers that shows the relation between consumption expenditures and income for a household sector. The purpose of this is to summarize the consumption-income relation within a household. 

• APC = the ratio of consumption to income. 
• APS = ratio of savings to disposable income.
• MPC = proportion of increase indisposable income that is used for consumption.
• MPS = changes in the level of savings compared to the changed in level of disposable income.

With these four different equations, you can calculate the different consumption schedules and come to the conclusion between the consumption and income and whether it is sufficient. 

https://www.youtube.com/watch?v=tm35tW_9OMU

Works Cited

"AmosWEB Is Economics: Encyclonomic WEB*pedia." AmosWEB Is Economics: Encyclonomic WEB*pedia. N.p., n.d. Web. 04 Mar. 2015.

"Gross Domestic Product." Wikipedia. Wikimedia Foundation, n.d. Web. 04 Mar. 2015.

"Paradox Of Thrift Definition | Investopedia." Investopedia. N.p., 25 June 2010. Web. 01 Mar. 2015.