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What The Government Can Do To Reduce The Gas Price?

1707 words - 7 pages

A carefully considered economic policy of a government may in fact shield, to a certain extent, the Canadian economy from the shocks of increasing world prices of oil and resources. There are a number of policies that could be applied to achieve a stable domestic economy. Some of these points are discussed below.1. Government Fiscal and Monetary Policies.Governments in market economies play critical roles in providing the economic conditions in which the marketplace of private enterprise can function most effectively.One such role is to provide a widely accepted, stable currency that eliminates the need for cumbersome and inefficient systems of barter, and to maintain the value of that ...view middle of the document...

Monetary policy involves changes in the supply of money and the availability of credit. In a period of high inflation and low unemployment, Canadian policymakers can cool down the economy by raising interest rates, thereby reducing the supply of money and the availability of credit. Then, with less money in the economy to spend and higher interest rates, both spending and prices will tend to fall, or at least increase less quickly. As a result, both output and employment will tend to contract.The problem with the current situation is that, although Canada's economy is growing, the increases in world prices can lead to a slowdown as the businesses come to terms with increased cost of production. Knowing the current economic health and applying a suitable monetary policy is difficult.When both unemployment and inflation rise at the same time, however, governments can face a dilemma. The reason is that monetary and fiscal policies are designed to adjust the level of total spending in a nation, but not to cope with a relatively sudden decline in supplies, which can trigger inflation and unemployment simultaneously. The current situation we Canadians find ourselves in had in fact occurred in past. One case occurred in the 1970s when embargoes on oil exports by major oil-producing nations caused huge price rises that rippled through the economies of the industrialized nations. Such decreases in supply raise price levels while lowering production and employment levels.To deal with such supply shocks to Canadian national economy, our government can try to increase people's incentives:- to produce;- save; and- invest.Thereby increasing the effective level of competition in the nation by reducing monopoly power; or eliminate bottlenecks of key resources, whether a commodity such as oil or certain kinds of skilled labor like engineers.In the case of oil-export restrictions, for example, Canada can stimulate domestic oil production, provide incentives for greater energy efficiency and conservation, and invest in alternative energy sources. However, most of these so-called supply-side policies tend to work slowly, over periods of years rather than months.While governments can offer no panaceas in the long-standing fight against inflation and unemployment in market economies, they can be effective in moderating the effects of these problems.Policy makers and economists now acknowledge an important government role in fighting unemployment and inflation with long-term stabilization policies, including generally stable rates of growth in the money supply, government spending programs that automatically rise when the economy slows down and fall when the economy picks up (such as benefits paid to unemployed workers), and tax schedules that reinforce those automatic spending programs by taking less from consumers and workers when their incomes fall and more when their incomes rise.In the end, it is important to recognize that in any type of economic system,...

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