Macro Economics - Assignment Example

Macroeconomics Discussion of the current event According to the Canadian Press, the International Monetary Fund (IMF) reported thatin the event of an economic down turn, the Canadian federal government needs to loosen its efforts in order to balance the budget by 20151. In 2014, the IMF expects the Canadian Economy to grow by 2.2 %. This is an improvement from the 1.7 % in the previous year. The IMF said that the state had room for improvement, since it was on track on meeting its target of ensuring balanced books by 2015-the same year for the scheduled federal elections.

The IMF further argued that in this regard, the fiscal policy ought to strike the prerequisite balance between formulating fiscal buffers, as well as supporting growth.Jim Flaherty, the Finance Minister, asserted that the balanced budget was not negotiable. The IMF’s report also pointed out some of the probable storm clouds on the horizon including the cooling housing market, historic debt-to-income levels, along with increased risks in the United States and Europe that could affect the Canadian exports and interest rates.

As cited by Jackson, the Harper government requires a sound fiscal thinking, and not balanced laws2. The report by the Washington-based agency further outlined that Canada requires a strategic plan for long-term growth including a fiscal policy that focuses on the reduction of government debt. The fiscal policy needs to have a positive impact on the Canadian economy.Analysis using the IS-LM modelDirect and indirect taxation, budget balancing, and government spending can be utilized to counter-cyclically smooth out volatility of real national output.

The graph below shows that anything that influences a change in government spending, consumption, or investments will shift the Investment Saving curve3. Therefore, an increase in national spending as well as increasing the demand for goods and services in similar rates pushes the IS curve to the right. The aggregate demand together with the gross domestic product of the nation is increased4. On the other hand, interest rates need to increase in order to equilibrate the liquidity preferences and loanable funds.

This will cushion Canada from economic down turns.BibliographyDarby, Michael R. "The Complete Keynesian Model". Macroeconomics. New York: McGraw- Hill, 2009. pp. 285–304. Gardner, Ackley. "The Complete Keynesian Model". Macroeconomic Theory. New York: Macmillan, 1999. pp. 359–398.Jackson, Andrew. 28 January 2014. Canada needs sound fiscal thinking, not balanced budget laws. Accessed 22 October 2014 .The Canadian Press. 3 February 2014. IMF: Canadian economy to grow, slightly, by 2.2 per cent in 2014.

Accessed 22 October 2014 .