Team Assignment #1
Lessons 1 to 9
Class, you have been assigned into teams of 4 or 5. You need to discuss amongst yourselves how the duties of the assignment will be divided and the manner in which it will be presented to me. Working together will ensure that all parts will be done well and on time.
Question 1: Overview of the Macroeconomy: Interpretation (25 marks)
Please discuss the current state of the macroeconomy in Canada. In particular please discuss the growth rates and gross domestic product, the unemployment rate and lastly inflation. Please discuss how these variables compare to both the short and long run averages. In providing answers, please provide where data was obtained. You can use the internet or more…show more content… Please use diagrams to illustrate your answer. What are the pros and cons of fiscal and monetary policy?
Based on your analysis, does conducting fiscal and monetary policy result in the same impacts on inflation or output levels? Be sure to talk about the tradeoffs (or lack thereof) that exists between inflation and output in the short and long run.
Question 4: Policy (45 marks)
In many instances, government spending results in the economy moving to the long run steady state at the expense of higher inflation levels. All too often, the best policy is simply to do nothing, leaving the market to adjust in order get the economy back to the long run steady state level (full employment) at the lowest price level. The problem with government doing nothing is two fold. First they do not want to be seen as not acting, especially during a recession. Secondly, the economic benefits of the government doing nothing (such as during a recessionary period) takes a long time to materialize (given prices in the economy take time to adjust), which is not popular with governments especially if there is an election. There seems to therefore be a tension between the Bank of Canada who wants to achieve price stability first and output stability second, versus the Department of Finance who is more concerned with output stability and employment creation. Class, please outline the costs and