Although the recent economic downturns have not been as impactful in Canada, spending has, none the less, gone much lower, due to millions of Canadians saving a large percent of their income. A survey was released Wednesday of April 16th that over 84% of Canadians have money put away for the future or an emergency. Even though this may seem to be typical and no surprise to most people, this percentage was only at 67% two years ago. With over 88% of Canadian citizens considering the new tax-free savings account, and 68% already using one, saving is clearly a trend that will most likely to continue in the upcoming months.
http://www.vancouversun.com/business/fp/money/More+Canadians+saving+money/1501105/story.html
Although the general consensus is that saving will in turn cause a decreased amount of spending, and ultimately, an increased amount of unemployment, it is not as bad as most people theorize it to be. In the circular flow of money, it is shown that a lack of money going into a certain area will cause a domino effect on other areas. Luckily for most people, there is a trade off between unemployment and the inflation rate, shown in the Philip’s Curve. Because demand for products is down, inflation rates are also getting lower; therefore, products are much cheaper, which may be just as good as unemployment rates going up, in the eyes of many employed/ self-employed workers, who want the cheapest price they can get on products.
Pessimism and worry for the future of the economy is inevitable; however, with inflation rates also lowering, it may come as a relief to both employed and unemployed citizens. Even though I prefer a booming economy with a very high consumer confidence, and the complementary increase of inflation, an economic downturn is not the worst thing in the world, since there is at least a lowering in the cost of products. The worst case scenario would be a “stagflation”, which is what happened during the 1970’s. Canadian citizens should feel somewhat fortunate, considering the problems they have in the US currently, due to bad governmental decisions for the economy.
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3 comments:
I believe lower prices will increase consumer spending but in this case, I think it will lead to more problems. Lower prices due to a decrease in inflation may benefit people such as the unemployed but if we look at the businesses, they are the ones that are suffering from the prices. So in attempt to increase their profit margin, businesses may lay off workers. On one hand, some people may be saving a few dollars on their purchases but on the other hand, more people are getting laid off which in turn will negatively affect the economy.
Edmond Li
Block F
I agree that lowering the prices will indeed help the economy. Since the money a consumer spends is invested four times the original amount spent, it is better to have lowered prices. When prices are high, people aren't willing to spend. With lowered prices, business will still be able to avoid bankruptcy because people are willing to spend more. Overall, this decrese in price for goods is a good step taken by the Canadian government.
I agree lowering prices will definitely help the economy. With lower prices consumers will be able to consume more. This will help the economy to get out of the recession we are currently in. As more people are starting to spend money again on goods with low prices, the demand for goods will slowly start to rise. With the demand for goods rising, this will lead to the employment rate to increase because more productions will be needed. As the employment rate slowly increase, the prices of goods will slowly increase as well to pay for the employees. If price increased slowly, consumers will be less likely to notice the difference. Therefore the government making a choice of lowering the prices of goods is a good idea.
-mMAO
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