Canada: Attempt To Increase Economic Growth
It is imperative that economic agents charged with the responsibility of putting resources into use and local citizens who avail labor, capital, as well as land resources, be well versed with the trends in the market and their role in steering economic growth. People must be ready to participate in the distribution, production, and exchange of goods and draw a line as to the area where the consumption of the products will be. The factors that make people choose a particular economic activity or system are vested in the context, content, set conditions, available parameters as well as the social organization of the society. This is largely because as opposed to other activities, industrialization facilitates the emergence of new areas from which the economy can stabilize and grow; offering more chances for people to enjoy a quality life and enabling effective practices within all sectors.
This means that slow economic growth distorts society norms as it will increase unemployment, widen the gap between the rich and the poor and increase the deficit in the balance of payment. With all these effects brought by the slow economic growth, proper measures should be undertaken to improve Canadian productivity. These measures can range from agricultural productivity to industrialization. Agricultural productivity can be increased by introducing new farming technologies while industrialization will require the use of fiscal policies to stimulate economic growth and reduce job losses.
Measures Recommended To Improve Productivity
One of the measures that will play an important role in increasing productivity is through the regulation of economic activities. This regulation will be through the use of monetary and fiscal policies in regulating the interest rates in the market. The monetary policy entails the use of monetary tools to regulate economic activities. An important function of the fiscal policy is to produce a balance between the total goods and services which are likely to be available to the community and the total claims which are likely to be made on them. Thus, before the fiscal policy, the government forecasts the potential growth of output and imports in the coming year and the growth for them which is likely to arise. If the situation revealed by the forecasts shows that the demand is growing slowly, action may be taken in the budget to increase demand. Thus the minister may stimulate demand by a reduction of taxation. A reduction in taxes on incomes, for example, places more money in the hands of consumers; if consumers increase their spending then demand for goods and services are stimulated.
The governments should impose lower tax rates on business entities. These incentives usually reduce the need for large amounts of initial capital, while also reducing the risks. As a result, business ventures that are considered risky and unviable become more profitable, thus facilitating investment. Tax incentives by the government also stimulate research and development, further encouraging the start-up of new businesses. This helps to increase the saving levels and the formation of capital in the private sector. As the investment capacity of the private sector increases, the result is economic growth for the country. Of no less importance is the fact that such incentives attract foreign direct investment, further enhancing economic growth.
Additionally, targets of government spending can facilitate growth in certain areas of the economy, which in turn have a positive impact on the whole economy. Increased spending on the transport infrastructure for instance can bring improvements to the sector, which results in increased productivity and competitiveness. This is because the transport of raw materials to industries will be facilitated, while the transportation of such goods to various parts of the country enhances competitiveness. Improved transport infrastructure will also facilitate an increase in the number of industries, in that increased access to new areas also increases the access to more resources.
Taxes also facilitate economic growth by reducing the size of a country’s informal economy. This enables the government to tap into the economic resources availed by the informal economy, thus facilitating economic growth. At the same time, the existence of informal economies creates a fertile ground for black markets, which facilitates tax evasion. This not only results in a loss of revenue by the state but also weakens the country’s fiscal system. This happens as the untaxed income held by the black marketers is used to purchase goods and services, which results in inflation.
On other hand, taxes on goods and services may be reduced to lower prices so that consumers will be encouraged to buy. Alternatively, the government may increase its expenditure in the hope that more spending power will stimulate demand. This increased spending may take several forms. To counter inflation the government will normally budget to receive in taxation than the government intends to spend. They will budget for a surplus’ the effect of which is to reduce the volume of purchasing power in circulation, provided the government does not increase its spending on the strength of the extra revenue.
Fiscal and monetary policies could be used to try to shift resources from the production of consumer goods into the production of investment goods. As far as monetary policy is concerned, low-interest rates and increased availability of credit may encourage firms to invest more and so increase the capital stock. Unfortunately, this policy tends not to reduce consumption spending – indeed, it is more likely to increase such spending and so possibly lead to the building up of inflationary pressures.
Canadian government’s objective is to raise the growth rate; one can conclude that the appropriate policies must be those which influence the growth of the labor force, the growth of the capital stock, and the quality of the country’s labor and capital. Consequently, fiscal and monetary policies will be used mostly for short-run demand management and not for the longer–run objective of economic growth. The government will emphasize supply–side policies in the attempt to increase economic growth.