Macroeconomic policies used by the Canadian Government and the Bank of Canada over the last two years

Macroeconomic policies used by the Canadian Government and the Bank of Canada over the last two years

Introduction

Government and Bank of Canada have an important role in the macroeconomics policies of the Canada. The macroeconomic policies are policies that include the wide range of decisions from the government officials as well the central bank of the country. These decisions include behavior of economic aggregates such as inflation, unemployment, total output of the goods and services and economic growth in the country (Eijffinger, Sylvester & Hoeberichts, 2002, pp.96). As like any other country, the role of government of Canada is to formulate the economic policy that raises revenues by taxing the economic activities and to distribute these resources by providing services of defense, health care, education and housing. This part of macroeconomics policy making is known as the fiscal policy. Since the responsibility of government is to raise the revenues through and spend these revenues on economic development, this activity can be performed on federal, provincial and municipal level. Since this type of policy covers the areas of tax collection and government expenditure, the decisions can range from the aggregate demand, resource allocation and distribution of income (Bank of Canada, 2012, http://www.bankofcanada.ca).

Monetary policy on the other hand, is the policy that covers the wide range of policies regarding the amount of money that is circulated in the economy. In Canada monetary policy is implemented by Bank of Canada that functions under the government of Canada. The purpose of Bank of Canada is to adjust short interest rates for the monetary expansion and also maintaining low rate of inflation. There is one policy instrument of the monetary policy of Canada which is to set the targets for the overnight interest rates (Bank of Canada, 2012, http://www.bankofcanada.ca).

The year 2008 had seen the severe recession on the economy of the globe. Many countries including suffered the major declines in the real GDP. It is reported that Canada's real GDP is declined by 5.4% which is the largest drop since 1991. Since then the fiscal and monetary policies have take considerable amount of importance by the policy makers (Department of Finance Canada, 2012, http://www.fin.gc.ca).

Discussion

Since the year 2010-2011, the global economy is recovering from the severe recession that hit in year 2008. The global financial market conditions are improving and commodity ...