Canadian public economics policy Essay Example | Topics and Well Written Essays - 750 words

Canadian public economics policy - adjudicate ExampleGovernment spending has been used to determine the size of a organization because it constitutes a whacking part of GDP, such that increasing it will effectively attach GDP. Further more(prenominal), because government spending increases inflation as a result of increased m atomic number 53y supply increases deficits by choosing non to increase revenues vis--vis spending and increases debts by choosing to borrow funds to finance spending, it makes a logical measure of the size of government.While this observation is theoretically sound, the actual effect of government spending is inconsistent. First, with regard to tax breaks and subsidies, because of its varying effects on the behaviour of businesses, the effect of government spending varies as well. For example, Canadas Five Year $100 billion Tax reduction Plan should lead to a decrease in the size of government. However, because it makes Canadas business climate more comp etitive, it whitethorn induce corporations and business owners to move operations to, or increase operations in Canada, leading to an increase in the size of government instead. Second, it will also have varying effects on otherwise components of GDP. ... as pensions and loan guarantees that are not always accounted for, but nonetheless exists, government spending is rendered an unreliable measure of the size of government.(375 words)Question 2A debt management policy utilizing government bonds indexed to inflation is one way governments illustrate credibility in fighting inflation by intentionally removing incentives to inflate. In this respect, the Canadian government is committed to fighting inflation because as part of its debt management policy, it issues security bonds, indexed to the country consumer charge index (CPI).A governments credibility in fighting inflation through with(predicate) indexed bonds can be illustrated through the differences between conventional and i ndexed bonds. With regard to the use of conventional bonds, a government debts rattling value decreases in accordance to increases in inflation because as borrower, it will only have to pay a fussy amount, based on nominal terms, regardless of changes in a currencys purchasing power caused by inflation. Since government financing through bonds indicate an implied obligation to pay in the future, conventional, nominal bonds eventually decreases in real value as the purchasing power decreases through yearly inflation. While these risks can be trim back through setting nominal interest rates that forecast possible increases in inflation, they are not secured from its unexpected sharp rises or declines. Thus, if inflation increases sharply, governments will require fewer resources to pay for its bonds transferring the loss in real value to the bondholder. Contrary to conventional bonds, indexed bonds, by linking their nominal terms to inflation specifies a more stable value for bondh olders because the burden caused by inflation is placed on the