Monetary Policy and Interest Rates

Here is the link to the Money Sense article needed to complete the assignment (will be given out next week):

http://www.moneysense.ca/spend/real-estate/mortgages/us-federal-reserve-interest-rate-hike-impacts-canadians/

National Debt Quiz to try

American Quiz
http://www.pbs.org/newshour/rundown/quiz-u-s-government-get-money/

Link to interactive surplus and deficit chart

Click here for interactive chart

News clips on Canada's debt and deficit situation

http://news.nationalpost.com/news/canada/canadian-politics/john-ivison-with-federal-budget-liberals-have-consigned-canada-to-118-6-billion-deficits-into-next-decade

Causes of Business Cycles

Business cycles are caused by fluctuations in Aggregate Demand.

Other causes and contributing factors are the following:

• Fluctuations in Investment spending
• the Multiplier effect
• Fluctuations in Exports
• other events such as war, disaster, and shocks such as the banking collapse/financial crisis in 2008

Read this recent news article from Australia about the multiplier effect that government spending can have in an economy:
ABC news story

Business Cycles

The business cycle refers to the ups and downs of AD over time.  There are 5 phases to the business cycle:
Trough
Recovery
Expansion
Peak
Recession (defined as 2 successive quarters of negative GDP growth)

Two Models of the Economy

We can think of the economy in 2 ways:

1) AD/AS model - The economy is like our demand and supply model used in microeconomics, except that we add all the demand in the economy to get Aggregate Demand, and all the supply in the economy is Aggregate Supply

2) Income-Flow Model - also called Circular Flow Model - the economy is like a tire that expands and contracts.  Leakages from the circular flow make the economy contract.  These leakages are Taxes (T), Savings (S), and Imports (M).  Injections into the circular flow make the economy expand.  These injections are Government Spending (G), Real Investment Spending (I), and Exports (X).