CIE3M1-01

 One of the biggest problems facing Canada and any country is the waste of its human resources.  Canadians aged 15 and over who are without work and are actively seeking employment are classified as unemployed

 Unemployment rate – is % of members of the labour force who are unemployed  discouraged workers are not officially unemployed because they give up looking for work even though they still want to work  Full employment Canada is not 0% because people always looking for a better job or temporarily out of work

 Regional rates – traditionally unemployment rates have been highest in Atlantic Canada & Quebec and lowest in Ontario and Alberta  Unemployed Young adults – ages > ages 25   Unemployed Women > Unemployed Men

 Seasonal – loss of jobs due to changes in the climate and other seasonal conditions (e.g. construction, farming, fishing)  Frictional – temporarily unemployed due to the time required to change jobs (e.g. students leaving school)

Structural – is the loss of jobs due to: 1. long-term changes in consumer demand (e.g. horses to cars) 2. the decline in natural resources (e.g. cod on Atlantic coast) 3. the development of new technologies (e.g. farm machinery) 4. shifts in trade between nations (e.g. NAFTA)

Retraining and education is the key solution Cyclical / Inadequate-Demand 1. trough – low point of business cycle with high unemployment 2. recovery – improving employment as spending increases 3. peak – high levels of employment because of high spending 4. recession – high prices and decreasing demand lead to lower levels of employment

 1930s saw a prolonged period of high unemployment (>20%) in Canada and throughout the world that caused great misery

 Canada has not seen the return of the Great Depression, but still faced the problem of the business cycle with unemployment rates hitting 12% in the early 80s over 10% in the early 90s

 macro-economics is the study of the economy as a whole (e.g. consumption)  micro-economics is the study of the economic actions of individuals and groups of individuals (e.g. consumers in Markham)

simple bucket – a model of how an economy functions simple economy I – all consumption (C) is spent by businesses on productive resources simple economy II, with savings (S) – leakage from bucket of savings simple economy III, with savings, and investment (I) – injection of investment offsets the leakage of savings

causes of changes in savings – influenced by income and spending patterns causes of changes in investment – future expectations, interest rates 1. S = I  Equilibrium and stability 2. S leakages 3. S > I  Contracting economy as leakages > injections

 simple economy IV, with government injections – injection of government spending (G) is offset by leakage taxation (T)  simple economy V, with foreign trade – injection of exports (X) make up 25% of Canadian income and are offset by leakage of imports (M) which are directly related to income levels

Summary 1. M + T + S = X + G + I  Equilibrium and stability 2. M + T + S leakages 3. M + T + S > X + G + I  Contracting economy as leakages > injections

 Government spending and taxing decisions are called fiscal policy and they have a significant impact on employment levels  automatic stabilizers – changes in G & T that occur automatically with changes in the economy (e.g. employment, income and output) that stabilize the economy

 discretionary fiscal policy – deliberate change in G & T by the gov’t attempting to stabilize the economy  tax leakage – a decrease in T slows this leakage  import leakage – an increase in taxes on imports slows this leakage

 government spending injection – an increase in G helps fill the bucket  export injection – subsidies and loans to exporting companies can help as can lower exchange rates for the Cdn. $

 1 / savings rate  10% saving rate means 1 /.10 = 10

 Reality much more complex than theory  Politicians want to stay in power, so they fear unpopular policies despite their correctness

 difficult to know for sure where we are on the business cycle  difficult to know what type of policy is most correct 1. recognition lag – time between onset of recession and knowing it has started 2. decision lag – time needed to decide which policy is most correct 3. implementation lag – time needed for policy to take effect

 Atlantic Canada has different problems than Central Canada

 Easy money policy 1. B of C buy bonds 2. B of C lowers bank rate  Tight money policy 1. B of C sells bonds 2. B of C raises bank rate

excess reserves – depends on how banks and consumers react  timing problem – recognition time lag