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 15-24 > 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-Demand1.trough – low point of business cycle with

high unemployment2.recovery – improving employment as

spending increases3.peak – high levels of employment because

of high spending4.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 stability2.S < I Expanding economy as injections >

leakages3.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

• Summary1.M + T + S = X + G + I Equilibrium and

stability2.M + T + S < X + G + I Expanding

economy as injections > leakages3.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 policy1.B of C buy bonds2.B of C lowers bank rate Tight money policy1.B of C sells bonds2.B of C raises bank rate

• excess reserves – depends on how banks and consumers react

timing problem – recognition time lag