http://www.canada.com/windsorstar/news/business/story.html?id=33448932-b05d-4841-9f6e-a3c4e15eb97c&k=86761
Summary
In New York in the states, the economy there has recently been in risk of going into a recession. Thus, the Federal government did major reductions on interest rates. This has affected some businesses and households when the cuts were announced. Also, there were recent information which shows that there's a deepening of housing contraction. The government hopes that by making a series of interest rate cuts, it will keep the economy from going down right into a recession. Most economists predicted that the short-term interest rate will be cut by a 50 basis points to three percent; however, the reduction came to a surprise of 75 basis point cut when the stocks in the states headed to a significant selloff ami global stock market turmoil. Since then, the interest rate has dropped right down to 2.25%. Because of the downward slope on interest rates, price pressures on some goods affected many, thus the officials acknowledge these price raises and expected inflation, which can help increase the supply of money in the economy. In the article, it has also stated that the two mainfactors that can keep the United States out of a recession will be the healthiness of the labour market and consumers' ability to increase their spendings enough to eliminate the weakness in other parts of the economy.
Relation to the chapter
In the chapter, it has mentioned how the government uses the monetary policy to eliminate inflation and unemployment rate. This is the influence of interest rates, it acts like a stimulant or a . In this particular article, since US governemnt is trying to stop US from going into recession, monetary policy has came into affect. By influencing the interest rates, this can stimulate the spendings of consumers and increase the supply of money circulation in the economy. Having the economic activites increase, the economy in US will improve.
Personal Reflection
I think one of the main reasons to why the US is heading to recession is because of the war they are in right now. The government is spending too much into military and other criterias. It is evident that the major reductions in interest rates have affected many items in the market, like our basic foods such as eggs, oil and rice. I remember last time when i went to the states in march 2008. I was in walmart, and there was a sign up saying" consumers are only allowed to purchase 2 boxes of eggs". I was wondering why, and until now i have found out this is all because of the US economy's hitting the red. Luckily, Canada's economy hasn't been influenced much by the US. But I think that the US economy will improve and will not be in risk as to heading to recession very soon.
4 comments:
What the US is doing in cutting rates is what the Bank of Canada is doing in its efforts to prevent the same potential recession from spilling into Canada. I disagree with your statement that Canada’s economy hasn’t been influenced much by the US. Because our two economies are very closely tied, I believe that the US has a very strong influence on our economy. I believe that Canada is beginning to face a slowdown in its economy, following in the footsteps of the American economy. However, this makes me wonder, if the Canada is already doing the same thing the US is in terms of preparing for the expected recession, what will Canada do when the recession really does hit here in Canada? If Canada is taking preventive steps already, then it could be seen that the recession will not hit as hard here as it will in the US. I really hope that will be the case.
After reading your article on chapter 7, I agree that the U.S. may be moving towards a recession because of the war they are in. Much of the money is being spent on equipments, amunitions and etc. I found it very interesting when u said u went to Walmart and everyone was limited to purchasing 2 cartons of eggs...I have never heard of such thing. However, i dont think U.S. will run into a recession anytime soon because they still have many popular sectors that are growing. The U.S. should reduce interest rate to stimulate economic growth. I'm not sure if they are already doing that but if they aren't then they should. I think that it will help the U.S. a lot. It's sad to see that U.S. is in trouble while Canada is doing so well..
By lowering the interest rates, the US economy so that they can lend out more money and increase economic activities. The US government is using the monetary policy to help the situation. I must disagree with you saying that Canada's economy is not that affected by the US economy. Canada's economy is closely tied to the US's, and their economy affect ours a lot. Although US entered the recession a bit earlier than us, there are evidences that prove the Canadian economy (we're experiencing high inflation rates) is starting to slow down because of it. I really hope that the US government can solve the problem quickly so both the US and Canadian economy can stay stable.
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