Kinh tế học vĩ mô - Chapter 3: The canadian economy in a global setting

The Canadian Economy in a Global SettingChapter 3Laugher CurveFrank: According to this economist, Ernie, it’s all very simple. In an endogenous business cycle where variable-span diffusion indices are neither rising nor falling and the capital-to-output ratio is low, then the interplay of liquidity preferences and reserve ratios escalates and interest rates rise, causing the yield ratio to drop on common stocks.Laugher CurveErnie: I get it! In other words, when the economy goes higgledy-piggledy, the TSE goes blooey!The Canadian EconomyUltimately the Canadian economy’s strength is its people and its other resources.The Canadian economy is far from perfect.Diagram of a Market EconomyThe Canadian economy, as most market economies, is divided into three groups: business, households, and government.Diagram of a Market EconomyHouseholds supply factors of production to business and are paid by business for doing so. The place where this takes place is called the factor market.Diagram of a Market EconomyBusiness produces goods and services and sells them to households and government. The place where this takes place is called the goods market.Diagram of a Market EconomyGovernment engages in the following activities:It buys goods and services from business and buys labour services from households.It provides services to both business and households.Diagram of a Market EconomyGovernment engages in the following activities:It gives some of its tax revenues directly back to individuals (income redistribution).It oversees the interaction of business and households in the goods and factor markets.Diagram of a Market Economy, Fig. 3-1, p 56BusinessBusiness is the name given to private producing units in our society.Businesses decide what to produce, how much to produce, and for whom to produce it.Entrepreneurship and BusinessEntrepreneurship is the ability to organize and get something done.It is an important part of business, and an important ingredient in the economy.Consumer Sovereignty and BusinessAlthough businesses decide what to produce, they are guided by consumer sovereignty.Consumer sovereignty means that consumers’ wishes rule what is produced by businesses.Consumer Sovereignty and BusinessBefore deciding to start a business, the key question is: "Can I make a profit?"Profit is what’s left over from total revenues after all the appropriate costs have been subtracted.Consumer Sovereignty and BusinessBy channeling the desire to make a profit for the general good of society, the Canadian economic system allows the invisible hand to work.Forms of BusinessThere are three major types of businesses: sole proprietorshipspartnershipscorporations.Sole ProprietorshipBusinesses that have only one owner.Advantages:Minimum bureaucratic hassle.Direct control by owner.Disadvantages:Limited ability to get funds.Unlimited personal liability.PartnershipBusinesses with two or more owners.Advantages:Ability to share work and risks.Relatively easy to form.Disadvantages:Unlimited personal liability (even for partner's blunder).Limited ability to get funds.CorporationBusinesses that are treated as a person and are legally owned by their stockholders who are not liable for the actions of the corporate "person."CorporationAdvantages:No personal liability.Increasing ability to get funds.Ability to shed personal income and gain added expenses.CorporationDisadvantages:Legal hassle to organize.Possible double taxation of income.Monitoring problems.Finance and BusinessThe dynamic stock market allows initial public offerings (IPOs) to quickly change value and to make their owners rich (or poor).E-commerce and the digital economy are very important, as they add competitive pressure to the “traditional” economyHouseholdsHouseholds are a single person or groups of persons living together and making joint decisions.The Power of HouseholdsHouseholds influence the other two economic institutions – government and business.Households as Suppliers of LabourThe largest source of household income is wages and salaries.Households supply the labour with which businesses produce and government governs.GovernmentTwo general roles of government are: An actor – collects money in taxes and spends that money on its projects, such as healthcare and education.A referee – sets the rules that determine relations between businesses and households.Government as an ActorAll levels of government consume about 20 percent of the nation’s total output and employ about 800,000 individuals.Provincial and Local GovernmentProvincial and local government employ over 450,000 workers and spend about $250 billion per year.They spend their tax revenues on social services,administration, education, and roads.Income and Expenditures of Provincial and Local Governments, Fig. 3-2, p 63Federal GovernmentIncome taxes make up 62 percent of the federal government’s revenue, while sales taxes make up about 20 percent.The two largest categories of spending are social services and debt charges.Income and Expenditures of the Federal Government, Fig. 3-3, p 64Government as a RefereeGovernment controls the interaction of households and businessIt sets the rules of interaction and acts as a referee, changing the rules when it sees fit.It decides whether economic forces will be allowed to operate freely.The Global SettingInternational issues must be taken into account in just about any economic decision a country or a firm faces.Global CorporationsCorporations with substantial operations on both the production and sales sides in more than one country are called the global corporationsGlobal corporations are increasingly more important in international tradeGlobal CorporationsGlobal corporations offer great benefits for nations.They create jobs, bring new ideas and new technologies to a country, and provide competition for domestic companies, keeping them on their toes.Global CorporationsGlobal corporations pose a number of problems for governments.Because a global corporation exists in a number of nations, no single government regulates or controls it.If they don’t like the policies of the host nation, they can simply leave taking their jobs with them.Global CorporationsGlobal corporations sometimes act as governments unto themselves – they can dominate the economy of a small nation.International TradeThe volume and value of international trade have grown substantially over the last centuryThere have been significant fluctuations in trade around the increasing trend.International TradeFluctuations in world trade result in part from fluctuations in world output.Fluctuations are also explained in part by trade restrictions that nations have imposed from time to time.Differences in the Importance of TradeThe importance of international trade to countries’ economies differs widely.For most nations, imports and exports roughly correspond.What and With Whom Canada TradesThe primary trading partners of Canada are the United States and the European Union.The majority of Canadian exports and imports involve manufactured goods.What and With Whom Canada TradesBalance of trade – the difference between the value of exports and the value of imports Balance of trade contains two components: The merchandise trade balance The services balanceWhat and With Whom Canada TradesTrade deficit – an excess of imports over exports.Trade surplus – an excess of exports over imports.What and With Whom Canada TradesCanada has been a net exporter of goods and a net importer of services over the past 30 yearsThe overall balance of trade has been positive during that time, since the merchandise trade balance exceeded the balance in services.Canadian Exports by Region, 2001, Fig. 3-5 , p 69Debtor and Creditor NationsThe Current account balance measures trade in goods and services and includes the interest we pay to the foreigners.The Canadian Balance of Trade, Fig. 3-6, p 70How International Trade Differs From Domestic TradeInternational trade involves potential barriers to trade.Quotas are limitations on how much of a good can be shipped into a country.Tariffs are taxes on imports.Non-tariff barriers are indirect regulatory restrictions on imports and exports.How International Trade Differs From Domestic TradeInternational trade involves multiple currencies that are bought and sold in foreign exchange markets.How International Trade Differs From Domestic TradeThe exchange rate is the rate at which one currency is traded for another.The exchange rate is determined by the demand and supply for the currency.Institutions Supporting Free TradeMost economists, liberal and conservative alike, generally oppose trade restrictions.Free Trade OrganizationsDespite political pressures to restrict trade, nations have entered into a variety of international agreements and organizations.Free Trade OrganizationsThe World Trade Organization (WTO) is committed to getting nations to agree not to impose new tariffs or other trade restrictions except under certain limited conditions.Free Trade OrganizationsThe WTO is the successor to the General Agreement on Tariffs and Trade (GATT) – an agreement among many subscribing nations on certain conditions of international trade.Free Trade OrganizationsThe push for free trade has a geographic dimension.Groups of nations have formed free trade associations – groups of nations that have reduced or eliminated trade barriers among themselves.NAFTA – U.S.-Canada-Mexico free trade zone that is phasing in reductions in tariffs.Free Trade OrganizationsThe leading examples of this are the European Union (EU) and the North American Free Trade Agreement (NAFTA).International Economic Policy OrganizationsThere is no international counterpart to a nation’s federal government.Any meeting of a group of nations to discuss trade policy is voluntary.There is no international body that has powers of compulsion.International Economic Policy Organizations Governmental international organizations that encourage international cooperation include:The United Nations (UN)The World Bank – a multinational, international financial institution that works with developing countries to secure low-interest loans.International Economic Policy Organizations Governmental international organizations that encourage international cooperation include:The International Monetary Fund (IMF) – a multinational, international financial institution concerned primarily with monetary issues.International Economic Policy Organizations There are also informal organizations such as:The Group of Five (Japan, Germany, Britain, France, and the U.S.) which meets to promote negotiations and coordinate economic relations among nations.International Economic Policy Organizations There are also informal organizations such as:The Group of Eight, which includes the Group of Five plus Canada, Italy and Russia and does similar work as the Group of Five.The Canadian Economy in a Global SettingEnd of Chapter 3